Mere disallowing the claim of deduction is not a ground to proceed penalty under sec 271(1)( C )

IN THE INCOME TAX APPELLATE TRIBUNAL

MUMBAI BENCHES “H”, MUMBAI

BEFORE SHRI B. RAMAKOTAIAH (AM) AND SHRI S.S. GODARA (JM)

ITA No.4274/M/2008

ASSESSMENT YEAR: 2002-03

Tara Jewels Export Pvt. Ltd.,

13, Manik Apartment,

B.S. Road, Dadar (W),

Mumbai – 400 028.

PAN: AABCT1161H

(Appellant)

Vs.

Deputy Commissioner of Income Tax-8(3),

Aayakar Bhavan,

M.K. Road,

Mumbai – 400 020.

 (Respondent)

Appellant by: Shri B.V. Jhaveri

Respondent by: Shri V. Krishnamoorthy (JCIT)

Date of hearing: 9.4.2012

Date of pronouncement: 2.5.2012

O R D E R

PER S.S. GODARA, J.M:

The assessee has filed the instant appeal against the order of Ld. CIT (A)-XXV, Mumbai dated 17.03.2008 partly confirming the penalty u/s 271(1)(c) of the Act for the Assessment Year 2002-03.

2. In this appeal, the assessee has raised six grounds. In the course of hearing, concise grounds have also been filed by the Learned AR. The same are taken on record. In view of the fact that the earlier grounds as well as concise grounds raised in the appeal challenge the very imposition of penalty, therefore, the same are being decided together.

3. Brief facts of the instant case are that the assessee filed its return on 31.10.2002. On 28.3.2008 the Assessing Officer passed assessment order. Made disallowance u/s 10A of the Income Tax Act (hereinafter to be referred to as the Act) by partly allowing assessee’s claim u/s 10A of the Act to the tune of Rs. 2,31,19,572/- (instead of Rs. 4,50,34,610/- claimed by the assessee) on the following grounds:

“(a) Inter-unit transfer of raw materials at cost forms part of the total turnover for the purpose of calculating deduction u/s 10A of the Act.

(b) Interest on FDRs cannot form part of the business profit for the purpose of calculating deduction u/s 10A of the Act.

(c) Exchange rate difference of Rs. 88,96,911/- is not entitled to deduction u/s 10A of the Act.”

4. Along with the said disallowance, the Assessing Officer also accepted the assessee’s claim of REP license u/s 80HHC to the tune of Rs. 43,72,861/- (instead of Rs. 65,64,515/- claimed by the assessee). U/s 14A also, the disallowance was made to the tune of Rs. 36,94,977/-.

5. The assessee preferred appeal against the assessment order dated 28.03.2005. The Ld. CIT (A) vide order dated 28.10.2005 increased the claim of the assessee u/s 10A to Rs. 3,20,79,151/- instead of Rs. 2,31,19,572/- accepted by the Assessing Officer. Accepted the assessee’s claim u/s 80HHC in toto. Regarding sec.14A, disallowance made by the Assessing Officer / Ld. CIT (A) remitted the matter back to the Assessing Officer.

6. The assessee as well as revenue filed appeal before the Mumbai ITAT against the order of Ld. CIT (A). However, the Learned Co-ordinate Bench remitted the matter back to the Assessing Officer regarding the claims u/s 10A, 14A as well as sec.80HHC of the Act.

7. Coming to the penalty, since the Assessing Officer vide assessment order had issued notice of penalty u/s 271(1)(c) of the Act, therefore, the penalty proceedings commenced. Vide order dated 27.3.2007, the Assessing Officer held that the assessee had filed inaccurate particulars of income by claiming excessive deductions. In view of the fact that claim u/s 10A of the Act was not maintainable. So, imposed penalty of Rs. 55,92,870/- @ 100% of the tax sought to be evaded.

8. In appeal against the penalty order, the Ld. CIT (A) has partly accepted the assessee’s contention regarding deduction u/s 10A only. Hence, the instant appeal before us.

9. In support of the appeal, the Learned AR has vehemently contended before us that the case in hand is not that of furnishing inaccurate particulars or of concealment of income. Taking cue from the order of ITAT, Mumbai for the AY 2002-03 which is available before us at page nos. 46-64 dated 3.6.2011, the Learned AR has submitted that once the issue of assessment itself stands remitted back to the Assessing Officer then it only proves debatability of the claims raised by the assessee. Only difference of opinion is there between the assessee and the revenue. The same cannot be called a false claim. Also relied on the Hon’ble Apex Court judgment in the case of CIT vs. Reliance Petro Chemicals Ltd., 322 ITR 158. The Learned AR has drawn our attention to ITAT Mumbai wherein the orders of this very assessee qua AYs 1998-99, 1999-2000 and 2000-2001 have been passed allowing appeals. Also relied on 44 SOT 79, ITAT Mumbai in the case of UNI Design Jewellery (P.) Ltd., vs. DCIT; 40 SOT 398, ITAT Mumbai in the case of Strides Arcolab Ltd. vs. ACIT. Prayed for acceptance of the appeal.

10. On the other hand, the Learned DR appearing for the revenue has supported the impugned order. Relied on case law Union of India vs. Dharmendra Textile Processors 306 ITR 277 decided by the Hon’ble Supreme Court. Prayed for rejection of the appeal.

11. We have heard both the learned representatives. With their able assistance, we have also perused the record referred to as well as case laws. Undisputed facts of the instant case are that qua all the three claims i.e., u/s 10A, 14A and 80-HHC, the Assessing Officer is still seized of the matter after remand order dated 3.6.2011 passed by the Learned Co-ordinate Bench (supra). Accordingly, it can be safely assumed that the claims in question raised by the assessee were not malafide to say the least. The law stands very well settled by the Hon’ble Apex Court in the case of CIT vs. Reliance Petroproducts (P.) Ltd., (supra) that merely disallowing a claim of deduction raised by the assessee is not a ground to proceed u/s 271(1)(c). For penalty, it has to be either a case of furnishing of inaccurate particulars, concealment of income or at least the claim should have been proved to be a mala-fide one. In our considered opinion, the said eventualities do not exist in instant case. Therefore, the penalty in question does not hold ground. Accordingly, we allow this appeal by setting aside the penalty imposed.

12. Hence, the instant appeal is allowed.

Order pronounced in the open court on this 2nd day of May, 2012.

                                                    Sd/-                                    Sd/-

                                    (B. RAMAKOTAIAH)            (S.S. GODARA)

                                ACCOUNTANT MEMBER     JUDICIAL MEMBER

Date: 2.5.2012

At: Mumbai

Okk

Copy to:

1. The Appellant

2. The Respondent

3. The CIT (A), Mumbai concerned

4. The CIT, Mumbai concerned

5. The DR “H” Bench, ITAT, Mumbai

// True Copy//

By Order

Assistant Registrar

ITAT, Mumbai Benches, Mumbai.