Income Tax Appellate Tribunal

Trine Entertainment Ltd. vs. Income Tax Officer

MANU/IU/0416/2023

10.05.2023

Direct Taxation

Mere making of a claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars of income

The assessee has filed present appeal challenging the order passed by the Learned Commissioner of Income Tax (Appeals) and it relates to Assessment Year 2011-12. The assessee is aggrieved by the decision of Learned CIT(A) in confirming the penalty of Rs.38,40,000 levied by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 (IT Act).

First disallowance relates to rejection of deduction claimed under Section 10A of the IT Act amounting to Rs.53.17 lacs. A perusal of the penalty order would show that, the disallowance of claim made under Section 10A of the Act has been made on account of non-filing of mandatory Audit Report in Form 56F of the Act and also for claiming deduction under Section 10A of the Act before set-off of brought forward losses/unabsorbed depreciation. Thus, it is a case of rejection of a claim on technical reasons and also on account of difference of opinion between the assessee and the Assessing Officer on the methodology of computation of deduction. None of the particulars given in the financial statements were found to be inaccurate. Hence, these facts would not lead to a case of furnishing of inaccurate particulars of income.

Since another deduction is allowed as an incentive to promote exports, the Hon'ble Delhi High Court in the case of ACIT vs BSL Software Ltd., has held that where claim for deduction was made under Section 10A of the Act on the basis of certificate of Accountant which was bona fide and the required facts relating thereto were furnished, then assessee could not be held to be liable for penalty. Accordingly, the Assessing Officer was not justified in levying penalty under Section 271(1)(c) of the Act on the disallowance of claim of deduction under Section 10A of the Act.

The next disallowance on which penalty was levied by the Assessing Officer relates to disallowance made under Section 40(a)(ia) of the Act amounting to Rs.53,90,600. The statutory disallowance made as per the legal fiction inserted in the Act, would not result in furnishing of inaccurate particulars of income. The Assessing Officer was not justified in levying penalty on this disallowance.

The last addition on which penalty was levied relates to disallowance of expenditure of Rs.5,84,698 claimed by assessee holding the same as 'capital expenditure'. It is a case where assessee has made a claim and same has been disallowed as, according to the Assessing Officer, the said expenditure is capital in nature. The decision taken by the Assessing Officer is a debatable one and hence no penalty could be levied on such a debatable issue. The Hon'ble Apex Court in the case of CIT vs Reliance Petroproducts (P.) Ltd., has held that, mere making of a claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars of income. Accordingly, the Assessing Officer was not justified in levying penalty on this disallowance also.

Penalty under Section 271(1)(c) of the Act cannot be levied on all the three disallowances made by the Assessing Officer. Accordingly, the order passed by the Learned CIT(A) is set aside and the Assessing Officer is directed to delete the penalty levied under Section 271(1)(c) of the Act for the year under consideration.

Tags : Assessment Penalty Legality

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