ITO 9(2)(3), MUMBAI vs. CORE JEWELLERY P.LTD, MUMBAI

We heard the parties and perused the record. The Assessing Officer has levied penalty on rejection of claim for deduction u/s. 10A of the Act on foreign contract gain. It is pertinent to note that the disallowance made by the Assessing Officer has been confirmed by both the learned CIT(A) and the ITAT. In the appeal filed by the assessee challenging the penalty levied by the Assessing Officer, the learned CIT(A) deleted the same accepting the contentions of the assessee that the disallowance of claim for deduction u/s. 2 M/s. Core Jewellery Pvt. Ltd.

On careful perusal of the record, we noticed that the learned CIT(A) has deleted the penalty with following observations :- “Decision After careful perusal of the assessment order and the written submission filed by learned AR of the appellant it has observed that the penalty proceedings has been initiated by the Assessing Officer on account of the addition made by the AO on account of forward contract gains and sundry balances written back and disallowance of deduction u/s 10A on these amounts. The additions were confirmed by the CIT(A) in Appeal No. CIT(A)-16/ITO-8(1)(2)/IT-236/2010-11 vide order dated 22/09/2011. The order of the CIT(A) has been confirmed by the Hon'ble ITAT in vide order dated 27.02.2013 to the extent that the disallowance of deduction u/s 10A has been confirmed to the extent of earning on foreign exchange fluctuation but the appeal has been allowed in respect of sundry balances written back' and it has been held that the appellant company is eligible for deduction u/s IOA on this amount. The order of the CIT(A) and ITAT has been placed on record. Now the only issue which needs adjudication is that whether penalty u/s 271(1)(c) is leviable on The additions made by the AO which has been confirmed by the CIT(A) and the ITAT to the extent of foreign exchange fluctuation because the ITAT has allowed the deduction u/s 10A on the sundry balances written back. It has been stated by the A/R of the appellant that merely because certain claim or deduction is disallowed in the assessment order it does not automatically lead to a conclusion that appellant has concealed its income or furnished in accurate 'particulars in respect of such income, more particularly when appellant furnished all details/explanations in respect of such claim and more over there is a debate or 'dispute on such issues. Reliance in support of the same has been placed on the following decisions:-

UNI Design Jewellery (P) Ltd., vs. DCIT 6 ITR 10 (Mum) The A/R of the appellant has relied on the following decisions in support of his contention that since the claim of deduction made u/s. 10A is a debatable claim, it cannot be said that the appellant company has concealed any income or furnished inaccurate particulars of income for evasion of tax. The ITAT's decision in the case of the appellant was delivered on 18.01.2010 which was much later than the filing of return of income and similarly the decision of the supreme court in the case of Liberty India reported in 317 ITR 218 also came much later than the date of filing of return. Hence the deduction u/s 10A was claimed under the bonafide belief that appellant was entitled to the same. It has also been stated that the claim has not been held to be false by the AO and the only, reason given by the AO for disallowance of deduction it that assessee earned forward contract gain which has no nexus with the activity specifically eligible for claiming deduction u/s 10A on the export profit.

We noticed that the learned CIT(A) has followed the decision rendered by Hon'ble Supreme Court in the case of Reliance Petro products (P) Ltd. (322 ITR 158) to decide the issue in favour of the assessee. The Hon'ble Supreme Court in the above said case has held that a claim made by the assessee, which is not sustainable in law, would not give rise to a case of furnishing inaccurate particulars of income. In the instant case, the assessee has claimed deduction u/s. 10A of the Act in respect of foreign exchange gain which was rejected by the Assessing Officer and the appellate authorities. Hence, the decision rendered by Hon'ble Supreme Court in the case of Reliance Petroproducts (P) Ltd. (supra) shall apply to the facts of the present case and accordingly we uphold the order passed by the learned CIT(A).

In the result, appeal filed by the Revenue is dismissed.