ACTI C-1(1), CHANDIGARH vs. M/S QUIXOTIC HEALTHCARE, CHANDIGARH

In the present appeal Revenue has raised the following effective grounds: 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty of Rs. 27,28,890/- on the confirmed addition on account of restricting the benefit of deduction claimed by the assessee under section 80-IC of the Income Tax Act, 1961 to 25% as against 100% deduction as the assessee had failed to discharge its liability to furnish its true and correct particular of income while filing the return of income.

Brief facts of the case are that the assessee claimed 100% deduction u/s 80IC of the Act from the A.Y. 2007-08 by making substantial expansion. After 5 years of claim the assessee once again made substantial expansion and started claiming deduction @100% from 6th year onwards u/s 80IC of the Act. The AO did not allow the assessee the 100% claim of deduction u/s 80IC and restricted the claim from 6th year onwards to 25%. The stand taken by the AO as confirmed in 1st and 2nd appeal. And the penalty proceedings were initiated against the assessee. The AO imposed penalty by making the following observation:

The Assessing Officer has also held that it is a fact that only a small percentage of the Income Tax Returns are picked up for scrutiny. If the assessee makes a claim which is not incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bonafide, the assessee must be liable to penalty u/s 271(l)(c) of the Act.

The Ld. CIT(A) deleted the penalty on the grounds that on this issue the assessee was under a bonafide belief that deduction of 100% is admissible beyond 5 years u/s 80IC and that was the reason it has made investment and expanded its unit. Ld. CIT(A) held that though the AO may be justified in denying the claim of deduction but this issue cannot be a subject for imposing penalty.

We have heard arguments of both the parties. The issue of allowability of deduction under section 80IC on substantial expansion had a long history of oscillations gone through various Judicial Authorities. The deduction was allowed and also disallowed by the Revenue at different times and the additions made were confirmed at appellate levels and were deleted by the orders of the Hon’ble High Court of Himachal Pradesh. The order of the Hon’ble High Court has been reversed by the order of the Hon’ble Supreme Court. The assessee has been found to have declared all the details in his return of income while claiming the exemption. Hence in accordance with explanation 1(B) to

As a result, the appeal of the Revenue is dismissed.

अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File