ASPEE SONS,SOLAN vs. INCOME TAX OFFICER, PARWANOO, PARWANOO

Order

PER KRINWANT SAHAY, AM:

1. That on the facts, circumstances and legal position of the case, Worthy CIT(A), NFAC in Appeal No. CIT (A), NFAC/2013-14/10103805 has erred in passing order dtd. 20.09.2024 in contravention of provisions of S. 250 of the Income Tax Act, 1961 (hereinafter referred to as "Act").

2. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO of imposition of penalty u/s 271(1)(c) of Rs. 5,66,616/- in respect of denial of deduction u/s 80IC on interest income.

3. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO of imposition of penalty u/s 271(1)(c) of Rs. 5,66,616/ on account of receipt alleged to be not directly derived from manufacturing activities of the industrial undertaking and allegedly wrongly declared to be not eligible for deduction u/s 80-IC.

4. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO of levying penalty of Rs. 5,66,616/- u/s 271(1)(c) even when the initiation of penalty and its imposition thereof is completely vague without specification of limb of s. 271(1)(c) for which the same has been initiated and also finally imposed.

5. That on facts, circumstances and legal position of the case, the impugned penalty order passed by the Ld. AO u/s 271(1)(c) and then confirmed by Worthy CIT(A) deserves to be quashed since the same have been passed without affording reasonable opportunity of being heard to the appellant.

on or before the disposal of the same.

3. Briefly the facts of the case are that the assessee, M/s ASPEE SONS, a partnership firm, filed its return of income for A.Y. 2014-15 declaring NIL income and claiming deduction of Rs. 4,10,11,784/- under Section 80-IC of the Income Tax Act, 1961. The case was selected for scrutiny and assessment was completed under Section 143(3) on 18.11.2016, wherein the Ld. AO made two disallowances: (i) Rs. 18,33,710/- towards ineligible profits from insurance claims and foreign exchange fluctuation not derived from manufacturing activity, and (ii) Rs. 9,86,497/- for excess deduction on additional depreciation. Penalty proceedings under Section 271(1)(c) were initiated for furnishing inaccurate particulars of income. While the assessee contested the depreciation disallowance and succeeded before the CIT(A) and ITAT, it did not challenge the disallowance of Rs. 18,33,710/-, which the AO treated as final and uncontroverted. The assessee failed to provide satisfactory explanations or supporting documents despite repeated notices, relying only on unsubstantiated judicial citations. Holding that the assessee furnished inaccurate particulars and invoking Explanation 1(A) to Section 271(1)(c), the AO levied a penalty of Rs. 5,66,616/-, being 100% of the tax sought to be evaded on the unchallenged addition, concluding that the assessee’s conduct fell squarely within the ambit of penal provisions under Section 271(1)(c) of the Act.

4. Aggrieved by the AO’s order, the appellant preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submissions of the assessee and the assessment records, upheld the AO’s findings in part. The Ld. CIT(A) concurred with the AO that the receipts in question did not fully qualify as income derived from manufacturing activities, as the appellant failed to substantiate the direct nexus between the receipts and its manufacturing operations. However, the Ld. CIT(A) did not explicitly address the penalty imposed under Section 271(1)(c), leaving the issue unresolved in the appellate order. The Ld. CIT(A) dismissed the appeal on the disallowance of the deduction but remained silent on the penalty aspect, thereby necessitating further adjudication.

5. Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal.

6. During the course of hearing the Ld. AR contended that the AO erred in disallowing the deduction claimed on the receipts, asserting that the said receipts were indeed derived from the appellant’s manufacturing activities. The AR argued that the receipts were integral to the business operations and fulfilled the conditions for eligibility under the relevant provisions of the Income Tax Act. The AR further submitted that the AO’s imposition of penalty under Section 271(1)(c) was unjustified, as there was no deliberate concealment or furnishing of inaccurate particulars by the appellant. The AR emphasized that the claim was made in good faith, based on a bona fide interpretation of the law, and supported by disclosures in the return of income and accompanying documents. The AR also pointed out that the Ld. CIT(A) failed to adjudicate on the penalty issue, rendering the appellate order incomplete and necessitating a remand for proper consideration.

. The imposition of penalty involves a serious allegation of concealment or furnishing of inaccurate particulars, which necessitates a thorough examination of the assessee’s conduct, the disclosures made, and the bona fides of the claim. The absence of reasoned findings by the Ld. CIT(A) on this aspect renders the appellate order deficient and incomplete. In view of the above, we deem it fit and proper to remand the matter back to the file of the Ld. CIT(A) for fresh adjudication. The Ld. CIT(A) is directed to examine the issue of disallowance of the deduction afresh, considering the submissions of the assessee, the nature of the receipts, and the relevant provisions of the Income Tax Act. Further, the Ld. CIT(A) shall specifically adjudicate on the imposition of penalty under Section 271(1)(c), providing reasoned findings on whether the assessee’s actions constituted concealment or furnishing of inaccurate particulars. The appellant shall be afforded a reasonable opportunity of being heard in accordance with the principles of natural justice.

9. In the result, appeal of the assessee is allowed for statistical purposes.