The bench ‘E’ comprising of Shri J. Sudhakar Reddy, Accountant Member and Smt. Beena A. Pillai, Judicial Member passed the aforesaid judgment on 7th April, 2016.
Pleaders engaged:
The Appellant was represented by Shri Salil Kapoor, Advocate along with Shri Vinay Chawla and Ms. Ananya Kapoor, Advocate. The Respondent was represented by Shri P.Damkanunjna, Sr. D.R.
Facts of the case:
The appeal was filed by the Assessee challenging the order of Ld.CIT(A)-XVI, New Delhi which was passed on 29.7.2011 in connection with the A.Y. 2004-05 wherein a penalty levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 which was confirmed by the First Appellate Authority.
The assessee was a company engaged in providing services including air conditioning, generator, electric, wooden fittings, etc. to its clients including M/s Global Vantedge (P) Ltd. and M/s Ephinay India (P) Ltd.
The assessee claimed deduction under section 80IA of the Act upto 100% of its total income amounting to Rs.36, 80,723/-.
The order in Form 10CCB read with Rule 18BBB was filed along with the return of income filed by the assessee. The assessee claimed that it was engaged in developing, operating and maintaining infrastructure facility.
The Assessing Officer observed that the assessee had enclosed copy of its Service Agreement, Hire Agreement for interiors and that for air conditioning between Assessee Company and its clients.
The Assessing Officer disallowed the claim for deduction as he relied that the assessee is only providing certain interiors, furniture, generator back up, etc. for companies which were lessees of the building owned by the Director of the Assessee Company and received services and hire charges for them.
The Assessing Officer observed that the assessee was not engaged in the business of developing, operating the infrastructure facilities that is specified in Section 80 IA of the Income Tax Act.
The audit report submitted by the assessee did not mention the sub section under which the assessee was claiming deduction in the audit report.
The assessee failed to state the specific provision under which it was claiming deduction. Reliance placed by the assessee on some case laws for claiming deduction under section 80IA.
It was observed that the guarantee card issued to the assessee company for approval of 100% software export unit status as per Software Technology Park Scheme had no connection with the claim for deduction under section 80 IA of the Act.
Being aggrieved by the order of the Assessing Officer, the assessee preferred the appeal.
At the time of hearing before the First Appellate Authority, the assessee withdrew the appeal on the ground that there was a change in the Counsel and he was advised to do so.
The Assessing Officer thereafter levied penalty under section 271(1)(c ) of the Act as the assessee had furnished inaccurate particulars of income. The First Appellate Authority confirmed the levy of penalty.
Grounds of appeal:
Being aggrieved by the impugned order, the assessee filed the appeal on the following grounds:
1. That the authority below was wrong both in facts and in law in upholding penalty under section 271(1) (c) of the Act.
2. That the lower authority had disregarded the explanation and evidence filed by the assessee.
3. That the penalty levied under section 271(1) (c) of the Act should be cancelled which is in contravention of settled law points.
The arguments of the parties:
The Ld. Counsel for the assessee stated that the assessee was guided only by legal advice in making this claim. He argued that provisions of law are complicated and the claim made was bonafide.
It was argued that the assessee was entitled for the deduction. It was also submitted that all the particulars relating to the claim along with an auditor’s report were filed along with the return of income and there was no concealment on behalf of the assessee.
It was pointed out by the Ld. Counsel that the claim was supported by a report of the tax auditor and the professional advice resulted in the assessee claiming the deduction. The Ld. Counsel relied on the Certifications from STPI to prove the bonafide of the assessee.
The Ld. Counsel relied on the following case laws:
a. CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC).
b. Haryana Financial Corporation vs. D.C.I.T. Chandigarh, I.T.A. 211/Ch./2010.
c. CIT vs. Smt. Rita Malhotra, 154 ITR 550 (Del.)
d. CIT vs. Shyama A. Bijapurkar, I.T.A. 842/2010 (Del.)
The Ld. D.R. strongly opposed the arguments of the assessee. He referred the assessment order and argued that a wrong claim has been made by the assessee, as such; it was a case of furnishing incorrect details of income.
The Ld. Counsel argued that the claim of deduction cannot be allowed and the assessee has made attempt to reduce its tax liability and hence it was not a bonafide error.
The Ld. Counsel also referred to auditor’s report and submitted that nowhere in the audit report the sub section under which the claim was made has been provided.
He further submitted that the assessee has been registered for computer software exports and not for supply of air conditioners.
The judgment:
Rival contentions of the parties were heard. Upon careful consideration of the facts of the case and after perusal of the impugned order it was held that the assessee had made a claim under section 80 IA of the Act.
However such claim was made based on the advice of the auditors. A perusal of this audit report demonstrates that the auditors believed that the assessee was entitled to deduction under section 80 IA of the Act.
Under the circumstances it was held that the explanation of the assessee that the assessee was under a genuine belief that it was entitled for deduction under section 80 IA of the Act is bonafide.
The assessee acted under the advice of a Chartered Accountant. It was observed that provisions under the Income Tax Act are highly complicated and it is difficult for a layman to understand them.
It was held that an assessee cannot be penalized for making a claim for deduction under the provisions of the Act which has many conditions attached.
It was also held that it cannot be said that the assessee has furnished inaccurate particulars of income. Applying the observation, the penalty levied under section 271(1) (c) of the Act was cancelled and the appeal of the assessee was allowed.
