ACIT vs. SRI. K.S. RAMAKRISHNA,

This appeal by the Revenue is against the order dated 25.11.2013 of the CIT(Appeals)-II, Bangalore relating to assessment year 2002-03.

In this appeal, the Revenue has challenged the order of CIT(Appeals), whereby the CIT(A) cancelled the order of AO imposing penalty on the assessee u/s. 271(1)(c) of the Act.

The facts and circumstances under which penalty was imposed on the assessee were as follows. The assessee is an individual. He was running the business of exporting cut flowers under the name & style, M/s. Kays Roses. The assessee claimed deduction u/s. 10B of the Act of a sum of Rs.41,44,202. According to the Revenue, the assessee was not entitled to deduction u/s. 10B of the Act, because he was granted only a letter of permission dated 21.3.2000 for setting up a 100% EOU at Naranahalli Village, Doddaballapur, Bangalore, for manufacture and export of cut flowers. Since the unit did not implement the project, the permission was cancelled by Development Commissioner, Cochin Special Economic Zone. The assessee thereupon claimed deduction u/s. 80HHC of the Act on the ground that it derived income from the manufacture and export of articles or things. This was also rejected by the AO for the reason that the prescribed audit report in Form 10CCAC was not enclosed.

On appeal by the assessee, the first appellate authority allowed the claim of the assessee u/s. 80HHC. On further appeal by the assessee, the Tribunal reversed the order of the CIT(Appeals) and restored the order of AO.

In respect of denial of deduction u/s. 10B and 80HHC of the Act, the AO imposed penalty on the assessee u/s. 271(1)(c) of the Act, holding that the assessee is guilty of having furnished inaccurate particulars of income.

On appeal, the CIT(Appeals) was of the view that since the claim of the assessee has been accepted by one of the authorities under the Act, viz., CIT(Appeals), the claim made by the assessee cannot be said to be a unsustainable claim and therefore imposition of penalty under the given facts and circumstances of the case cannot be sustained.

Against the order of the CIT(Appeals) cancelling the penalty, the Revenue has preferred the present appeal before the Tribunal.

At the time of hearing of the appeal, it was brought to our notice that as against the order of Tribunal in & 115/Bang/2006 dated 31.3.2005 in the quantum proceedings, the assessee preferred an appeal before the Hon’ble High Court of Karnataka in ITA No.44/2009. The Hon’ble High Court by judgment dated 25.11.2014 held that in principle assessee was entitled to deduction u/s. 80HHC, but, nevertheless, remanded the matter back to the AO to find out as to whether all the requirements u/s. 80HHC have been complied with by the assessee. The orders of the Tribunal were set aside by the Hon’ble High Court. It was the submission of the ld. counsel for the assessee that in view of the above circumstances, imposition of penalty cannot be sustained as the very basis of the order on which penalty was imposed has been set aside by the Hon’ble High Court.

The ld. DR relied on the order of the AO imposing penalty.

We have considered the rival submissions. We find that the very basis of the order on which penalty was imposed viz., furnishing of inaccurate particulars of income, in making a claim for deduction u/s. 10B of the Act or in the alternative u/s 80HHC of the Act was not sustainable. The Hon’ble High Court in its decision referred to earlier, has held that the assessee was entitled to deduction u/s. 80HHC of the Act and that the deduction claimed cannot be rejected on a technical plea by the Revenue that audit report was not filed. The Hon’ble High Court also observed that if the assessee has exported cut flowers and derived income therefrom, there is no reason why he should not be allowed the benefit of deduction u/s. 80HHC merely on technicalities. The Hon’ble High Court has set aside the order of Tribunal and remanded the issue of allowing deduction u/s. 80HHC of the Act to the assessee for fresh consideration by the AO. In the circumstances, the very basis on which penalty was imposed on the assessee no longer survives. Therefore, the order of AO imposing penalty on the assessee cannot be sustained. We therefore confirm the order of the CIT(Appeals) and dismiss the appeal by the Revenue.