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Facts
The assessee claimed a deduction under Section 80IAC of Rs. 12,28,288/- based on a provisional startup recognition certificate. The Assessing Officer rejected the claim as the certificate was not from the Inter Ministerial Board and initiated penalty proceedings. The assessee later withdrew the claim as the recognition was ultimately withdrawn.
Held
The Tribunal held that the assessee had provided a reasonable explanation for claiming and withdrawing the deduction, based on a misconception or misunderstanding of the provisional certificate. The assessee did not act deliberately in defiance of law or with dishonest intent.
Key Issues
Whether penalty under Section 270A of the Income Tax Act, 1961, is leviable when the assessee claims a deduction based on a provisional certificate which is subsequently withdrawn, and the assessee also withdraws the claim during assessment proceedings.
Sections Cited
80IAC, 270A, 143(3), 271(1)(c)
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Income Tax Appellate Tribunal, ‘A’ BENCH: BANGALORE
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI WASEEM AHMED
PER NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER
This appeal has been preferred by the assessee against the order dated 29/01/2025 impugned herein passed by the National Faceless Assessment Centre, Delhi (NFAC) / Ld. Commissioner of Income Tax (Appeals) (Ld. Commissioner) u/s. 250 of the Income Tax Act, 1961, in short, “the Act” for the Assessment Year (AY) 2018-19.
2. In this case, the Assessee had claimed deduction of Rs. 12,28,288/- u/s. 80IAC of the Act, by filing its original return of income which was selected for complete scrutiny and resulted into passing the assessment order, by which the Assessing Officer {AO} not only rejected such claim of the Assessee and but also initiated the penalty proceeding u/s. 270A of the Act, for underreporting of income by observing and holding as under:
“That the Assessee company has submitted a recognition certificate, according to which the assessee has been recognized as a “Startup” by the Department for Promotion of Industry and Internal Trade (DPIIT) (Ministry of Commerce and Industry) vide certificate dated 30.01.2018. Perusing the recognition certificate, it was observed by the Assessing Officer that the certificate is not a certificate issued by the Inter Ministerial Board and is not valid for availing tax benefits / deduction u/s. 80IAC as a certificate of eligible business from Inter Ministerial Board (IMB) was required and recognition certificate issued by the DPIIT was not sufficient. However, the Assessee had not submitted a copy of the certificate of eligible business issued by IMB and without aforesaid certificate, it would not be possible to allow the deduction claimed u/s. 80IAC of the Act for the AY 2018-19. In the absence of supporting document, the assessee’s claim of deduction u/s. 80IAC of the Act to the tune of Rs. 12,28,288/- is rejected and consequently penalty proceeding u/s. 270A of the Act initiated separately for underreporting of income and consequently a show cause notice was issued to the assessee to explain as to why penalty u/s. 270A of the Act shall not be imposed”.
The Assessee did not preferred any appeal against the assessment order u/s. 143(3) of the Act and therefore, the assessing officer by assuming that the Assessee has accepted the addition made in the assessment order, imposed the penalty of Rs. 6,55,923/- @ 50% of the tax sought to be evaded u/s. 270A of the Act.
The Assessee being aggrieved challenged the levy of penalty by filling 1st appeal before the Ld. Commissioner, who by taking cognizance of facts, as mentioned by the AO in the penalty order,
Thus, the Assessee being aggrieved has preferred the instant appeal. The Ld. Counsel for the Assessee has claimed that initially the Assessee was granted a certificate of recognition by the Department of International Policy and Promotion, Ministry of Commerce and Industry, Govt. of India dated 30/01/2018, whereby the Assessee was certified as a “Startup” and therefore, on the basis of said certificate of recognition, the assessee by filing his return of income, had claimed the benefit u/s. 80 IAC of the Act. However, during the scrutiny proceedings, the Assessee by realizing the fact “that finally in 2019 the recognition granted to the Assessee has been rejected by the appropriate authority and certificate of recognition is withdrawn”, withdrew its claim lodged u/s. 80IAC of the Act and therefore has claimed that no penalty can be levied / leviable, as it was a bonafide mistake of Assessee, in claiming such deduction u/s. 80IAC of the Act, on the basis of provisional recognition.
On the contrary, the Ld. DR has claimed that according to the relevant provisions of section 80IAC, certain authority is recognized for issuing the approval / certificate for claiming the benefits/deductions u/s. 80IAC of the Act. The assessee was simply recognized as a Startup but not granted a “certificate of recognition” in order to enable the Assessee to claim the benefits/deductions u/s. 80IAC of the Act and therefore the claim of the assessee has rightly been rejected by the Assessing Officer. Even otherwise, according to the provisions of section 270A of the Act, underreporting of income as defined in section 270A(3) of the Act is that if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143.
We have heard the parties and perused the material available on record and given thoughtful consideration to the rival claims of the parties and peculiar facts and circumstances of the case. The Hon’ble Apex Court in the case of C.I.T., Ahmedabad vs Reliance Petro products Pvt. Ltd on 17 March, 2010 {322 ITR 158, 2010 (3)} has held as under:
“Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature”.
The Hon’ble Apex Court in the case of Hindustan Steel Ltd Vs. State of Orissa on 4 August, 1969 {1970 AIR 253 or AIR 1970 Supreme Court 253} has also dealt with the identical issue and held as under:
” The penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute”.
From the aforesaid decisions, it is clear that simply making a claim which is not accepted or disallowed, cannot entail the levy of penalty. The penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so and when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
In the instant case, admittedly recognition certificate was granted to the assessee by the Department of Industrial Policy and Promotion (Ministry of Commerce and Industry, Govt. of India) vide certificate dated 30/01/2018 and therefore the assessee has claimed the deduction u/s. 80IAC of the Act. However, subsequently, the certificate of recognition was withdrawn by not allowing the ultimate recognition to the assessee by such department and therefore the assessee has withdrawn its claim during the assessment proceedings itself.
In our view, the Assessee has offered a reasonable/plausible explanation for claiming and withdrawing such deduction u/s. 80IAC of the Act, may be basis on misconception and/or not understanding the certificate granted and on not granted the final approval and withdrawing the provisional recognition certificate finally, by such department. And thus in our view, the Assessee neither acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. As observed above that simply making a claim which is not accepted of disallowed, cannot entail the levy of penalty. Thus, we are of the considered opinion that the penalty levied by the AO, as affirmed by the Ld. Commissioner, for misreporting is un- sustainable and therefore the same is deleted.
Order pronounced in the open court on 06-08-2025.