M/s. Meridian Impex, RAJKOT-GUJARAT V. The Assistant Commissioner of Income Tax, Circle-2, JAMNAGAR

ITA 1/RJT/2011

• Counselvise Citation: 124914 RSA 2011
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKUR GARG DR B
• Assessee Lawyers: VIMAL DESAI CA K B
• Keywords: Bonafide belief; Initiation of penalty proceedings; Wrong claim; Difference of opinion; Corroborative evidences; Revised return; Bonafide mistake; Revenue expenditure
• Section: 143(3); 14A; 80IB; 10B

Judgement Text

N , IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. E . . 3 =R K E . . EK K BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTAVA AM ITA NO. 01/RJT/2011 9R R / ASSESSMENT YEAR 2006 - 07. M/S. MERIDIAN IMPEX, JAMNAGAR. PAN : AAGFM8589G ( / APPELLANT) ASSTT. COMMISSIONER OF INCOME - TAX, CIRCLE - 2, JAMNAGAR. N / RESPONDENT 9REB / ASSESSEE BY SHRI VIMAL DESAI, CA. K B / REVENUE BY SHRI AKUR GARG, DR. B / DATE OF HEARING 25 - 07 - 2013 B / DATE OF PRONOUNCEMENT 25 - 07 - 2013 ORDER UNDER SECTION 255(4) OF THE INCOME - TAX ACT, 1961. . . 3 , =R K / T. K. SHARMA, J. M. : ON ACCOUNT OF DIFFERENCE OF OPINION BETWEEN THE MEMBERS, THE FOLLOWING QUESTION WAS REFERRED TO THIRD MEMBER U/S.255(4) OF THE I.T. ACT, 1961: - WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS CORRECT IN CONFIRMING THE PENALTY OF RS.7,28,621/ - LEVIED BY THE AO U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 OR IT SHOULD BE CANCELLED AS PROPOSED BY JUDICIAL MEMBER? 2. THE HONBLE PRESIDENT, ITAT NOMINATE D ZONAL VICE PRESIDENT SHRI G. C. GUPTA AS THIRD MEMBER. THE THIRD MEMBER VIDE HIS ORDER DATED 29 - 06 - 2013 AGREED WITH THE VIEW OF LD. J.M. CANCELLING THE PENALTY OF RS.7,28,621/ - LEVIED BY AO U/S.271(1)(C) OF THE I.T. ACT. THEREFORE, IN ACCORDANCE WITH MA JORITY VIEW, THE PENALTY OF RS.7,28,621/ - LEVIED BY AO U/S.271(1)(C) IS CANCELLED. 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 4. THIS O RDER PRONOUNCED IN OPEN COURT AT THE TIME OF HEARING I.E. ON 25 - 07 - 2013. SD/ - SD/ - ( . . K D. K. SRIVASTAVA ) ( . . R / T. K. SHARMA) ,,,A / ACCOUNTANT MEMBER 9 K / JUDICIAL MEMBER / ORDER DATE 25 - 07 - 2013. /RAJKOT NVA/ - RJ6 86 / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - M/S. MERIDIAN IMPEX, JAMNAGAR. 2 . N / RESPONDENT - ASSISTANT COMMISSIONER OF INCOME - TAX, CIR - 2, JAMNAGAR 3 . N 0 / CONCERNED CIT , JAMNAGAR. 4 . 0 - / CIT (A) , JAMNAGAR. 5 . N99N , N , / DR, ITAT, RAJKOT 6 . R / GUARD FILE. / BY ORDER PRIVATE SECRETARY, ITAT, RAJKOT , = , IN THE INCOME TAX APPELLATE TRIBUNAL AT RAJKOT E . . C , , BEFORE SHRI G.C. GUPTA, VICE - PRESIDENT (AZ) ( THIRD MEMBER) ITA NO. 1 / RJT / 2011 [ ASSTT. YEAR : 2006 - 2007 ] M/S.MERIDIAN IMPEX C/O. D.R. ADHIA, OM SHRI PADMALAYA BESIDE TRIKAMRAIJI HAWELI OPP: HOTEL IMPERIAL PALACE, 16 JAGNATH PLOT DR. YAGNIK ROAD, RAJKOT. / VS. THE ACIT, CIR.2 JAMNAGAR. ( / APPELLANT) ( / RESPONDENT) 9RE B / ASSESSEE BY : SHRI VIMAL DESAI, C.A. K B / REVENUE BY : SHRI RAJIV RANADE, CIT - DR DATE OF HEARING : 19 TH JUNE, 201 3 . O R D E R ON ACCOUNT OF DIFFERENCE IN OPINION BETWEEN THE LEARNED JUDICIAL MEMBER AND LEARNED ACCOUNTANT MEMBER OF ITAT, RAJKOT BENCH, THIS MATTER HAS BEEN REFERRED TO ME BY THE HONBLE PRESIDENT, ITAT FOR CONSIDERATION AND DISPOSAL UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961. THERE IS A DIFFERENCE OF OPINION BETWEEN THE LEARNED MEMBERS OF THE RAJKOT BENCH ON THE ISSUE OF FR AMING OF POINTS OF DIFFERENCE BETWEEN THE MEMBERS. ACCORDINGLY, THE LEARNED JUDICIAL MEMBER AND THE LEARNED ACCOUNTANT MEMBER HAVE FRAMED POINT OF DIFFERENCE SEPARATELY. THE LEARNED JUDICIAL MEMBER HAS FRAMED THE FOLLOWING POINT OF DIFFERENCE FOR DISPOSA L BY THE THIRD MEMBER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS CORRECT IN CONFIRMING THE PENALTY OF RS.7,28,621/ - LEVIED BY THE AO U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 OR IT SHOULD BE CANCELLED AS PROPOSED BY JUDICIAL MEMBER ? THE LEARNED AM HAS FRAMED THE FOLLOWING POINTS OF DIFFERENCE AS UNDER: 1. WHETHER A WELL - REASONED ORDER PASSED BY THE CIT(A) CAN BE REVERSED OR OTHERWISE INTERFERED WITH BY THIS TRIBUNAL WITHOUT RECORDING REASONS FOR DISAGREEING WITH IT. 2. WHETHER THE CASE OF THE ASSESSEE, ON THE FACTS STATED IN THE DISSENTING NOTE OF THE AM, IS COVERED BY EXPLANATION 1 TO SECTION 271(1)(C). 2. I HAVE CAREFULLY CONSIDERED THE ABOVE POINTS OF DIFFERENCE DRAWN BY THE LEARNED MEMBERS OF THE RAJKOT BENCH, AND H AVE PERUSED THE PROPOSED ORDERS OF THE LEARNED JM AND THE LEARNED AM. I HAVE HEARD THE LEARNED COUNSEL OF THE ASSESSEE AND THE LEARNED CIT - DR. 3. THE CONTENTIONS OF LEARNED CIT - DR AND THE LEARNED COUNSEL FOR THE ASSESSEE WERE BROADLY THE SAME AS ADVANCED BEFORE THE REGULAR BENCH AND RECORDED IN THE PROPOSED DRAFTORDERS OF THE LEARNED JM AND THE LEARNED AM. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE - FIRM STARTED ON 7.2.2002. THE ASSESSEE WAS CLAIMING AND WAS ALLOWED DEDUCTION UNDER SECTION 10B FROM ITS INCEPTION. HE SUBMITTED THAT FOR THE RELEVANT ASSESSMENT YEAR 2006 - 2007, THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IB FOR THE FIRST TIME AMOUNTING TO RS.21,64,646/ - IN ITS RETURN OF INCOME, COPY OF WHICH HAS BEEN FILED IN THE COMPILATION BEFORE THE TRIBUNAL. HE SUBMITTED THAT THE ASSESSEE ON 24.12.2008, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HAS FILED A LETTER WITHDRAWING ITS CLAIM OF DEDUCTION UNDER SECTION 80IB OF THE ACT. HE SUBMITTED THAT THE CLAIM UNDER SECTION 80 IB WAS MADE DUE TO SOME WRONG LEGAL CONCEPTION, AND NOT TO HOODWINK THE DEPARTMENT. HE SUBMITTED THAT MERELY BECAUSE THE ASSESSEES CLAIM OF DEDUCTION WAS ULTIMATELY NOT FOUND ACCEPTABLE BY THE DEPARTMENT, IT CANNOT BE SAID THAT THE ASSESSEE IS GUILTY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE WITH THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KANBAY SOFTWARE INDIA (P) LTD., (2009) 122 TTJ (PUNE) 721. HE ALSO RELIED ON THE DECISION OF THE MUMBAI TRIBUNAL IN ZYCUS INFOTECH (P) LTD. VS. ITO, (2007) 17 SOT 310 (MUMBAI). 4. THE LEARNED CIT - DR HAS OPPOSED THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT IT IS A STRAIGHTFORWARD CASE, AND IS NOT AT ALL A CASE OF BONA FIDE WRONG LEGAL CONCEPTION ON THE ISSUE OF CLAIM OF DEDUCTION. HE SUBMITTED THAT THE AUDITOR OF THE ASSESSEE ITSELF HAS REJECTED THE CLAIM OF THE ASSESSEE AND STILL THE ASSESSEE CHOSE TO MAKE THE CLAIM. HE SUBMITTED THAT THE STAT UTORY REQUIREMENT OF FILING OF THE AUDITORS CERTIFICATE ALONG WITH CLAIM OF DEDUCTION MADE BY THE ASSESSEE WAS NOT COMPLIED WITH BY THE ASSESSEE. HE REFERRED TO RELEVANT PARAS OF THE ORDER OF THE LEARNED AM IN SUPPORT OF THE CASE OF THE REVENUE. HE SUBM ITTED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PRICE WATERHOUSE COOPERS PVT. LTD. V. COMMISSIONER OF INCOME - TAX , 348 ITR 306 (SC) IS DISTINGUISHABLE ON FACTS. HE SUBMITTED THAT HAD THE CASE OF THE ASSESSEE NOT BEEN SELECTED FOR SCRUTI NY ASSESSMENT, THE ASSESSEE WOULD HAVE ESCAPED WITH DEDUCTION UNDER SECTION 80IB OF THE ACT, WHICH WAS OTHERWISE NOT SUSTAINABLE IN LAW. HE RELIED ON THE DECISION IN THE CASE OF CIT VS. ZOOM COMMUNICATION P. LTD., 327 ITR 510 (DELHI). HE SUBMITTED THAT T HE ASSESSEE HAS FAILED TO EXPLAIN UNDER WHAT CIRCUMSTANCES THE AMOUNT OF DEDUCTION UNDER SECTION 80IB WAS CLAIMED BY THE ASSESSEE. HE RELIED ON SERIES OF FOLLOWING DECISIONS: HIGH COURT OF DELHI IN THE CASE OF CIT VS. SPLENDOUR CONSTRUCTION HIGH COUR T OF DELHI IN THE CASE OF KANCHANJUNGA ADVERTISING (P) LTD. , 340 ITR 599 HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF SETHI INDUSTRIES CORPORATION VS. DCIT , 338 ITR 243 HIGH COURT OF DELHI IN THE CASE OF CIT VS. ECS LTD. , 336 ITR 162 HIGH COURT O F DELHI IN THE CASE OF CIT VS. ESCORT FINANCE LTD. , 328 ITR 44 ITAT DELHI BENCH IN THE CASE OF ACIT VS GOBIND AMBADY , 148 TTJ 356 ITAT KOLKATA BENCH IN THE CASE OF DARWABSHAW B CURSETJEE LTD. VS ITO , 147 TTJ 672 ITAT MUMBAI 'B' BENCH IN THE CASE O F MODERN INDIA LTD. VS DCIT , 122 TTJ 787 ITAT DELHI BENCH 'B' IN THE CASE OF CHADHA SUGAR PVT. LTD. VS ACIT , 146 TTJ 112 ITAT MUMBAI 'G' BENCH IN THE CASE OF B.R. TV VS ACIT , 144 TTJ 129 ITAT AHMEDABAD SMC BENCH IN THE CASE OF M/S. PARAM J WELLS VS ITO , 140 TTJ 739 ITAT DELHI 'E' BENCH IN THE CASE OF NARESH KUMAR VERMA VS DCIT , 124 TTJ 156 ITAT AHMEDABAD 'A' BENCH IN THE CASE OF YOGESH T. VANI VS ACIT, 138 TTJ 470 SUPREME COURT OF INDIA IN THE CASE OF APPROPRIATE AUTHORITY & ANR. VS HINDUMAL BALMUKUND INVESTMENT CO. (P) LTD. & ORS. , 251 ITR 660 SUPREME COURT OF INDIA IN THE CASE MANGLORE GANESH BEDI WORKS VS CIT & ANR , 273 ITR 56 HIGH COURT OF GUJ A RAT IN THE CASE OF S. J & S.P. FAMILY TRUST VS. CIT , 277 ITR 557 HIGH COURT OF GUJ A RAT IN THE CASE OF GAUTAM HARILAL GOTECHA VS DCIT HIGH COURT OF DELHI IN THE CASE OF DIT VS. UMA MAHESHWAR PARMARTH TRUST , 292 ITR 352 HIGH COURT OF ALLAHABAD IN THE CASE OF CIT VS DEEPAK M. KOTHARI HIGH COURT OF BOMBAY IN THE CASE OF SHIVSAGAR VEG. RESTAURANT VS. ACIT & ANR , 317 ITR 433 HIGH COURT OF ALLAHABAD IN THE CASE OF CIT VS. SMT. SWAPNA ROY , 331 ITR 367 HIGH COURT OF GUJ A RAT IN THE CASE OF DIT (EXEMPTION) VS SHIA DAWOODI BOHRA J AMAT , 344 ITR 653 5. THE LEARNED COUNSEL FOR THE ASSESS EE, IN HIS REJOINDER, SUBMITTED THAT THE FACTS OF THE CASE OF PRICE WATERHOUSE COOPERS PVT. LTD. (SUPRA) AND ZOOM COMMUNICATION P. LTD. (SUPRA) WERE ALMOST SIMILAR AND THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE CASE OF PRICE WATERHOUSE COO PERS PVT. LTD. BY THE HONBLE APEX COURT. HE SUBMITTED THAT THE FIRM, M/S. PRICE WATERHOUSE COOPERS PVT. LTD. , WAS A FIRM OF CHARTERED ACCOUNTANTS, AND IS ONE OF THE MOST LEADING FIRMS HAVING GLOBAL PRESENCE, AND EVEN IN THAT CASE THE CLAIM OF WRONG DEDUC TION WAS NOT HELD AS FILING OF INACCURATE PARTICULARS OF INCOME. HE SUBMITTED THAT THE ASSESSEE IS A SIMPLE PARTNERSHIP FIRM, AND THEREFORE SHOULD NOT BE HELD LIABLE FOR PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON ACCOUNT OF ITS BONA FIDE CLAIM OF A LEG AL DEDUCTION. 6. I HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PERUSED THE PROPOSED ORDERS OF THE LEARNED JM AND THE LEARNED AM ON THIS ISSUE. I HAVE ALSO PERUSED THE COPIES OF VARIOUS DOCUMENTS FILED IN THE COMPILATION BY THE ASSESSEE. THE ONLY ISSUE BEFORE ME AS THIRD MEMBER IS TO ADJUDICATE WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT WAS IN ACCORDANCE WITH LAW OR NOT. I FIND THAT THE ASSESSEE - FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTUR ING AND EXPORT OF BRASS ITEMS. IT IS AN HUNDRED PERCENT EXPORT ORIENTED UNIT AND ITS INCOME IS EXEMPT UNDER SECTION 10B OF THE ACT. THE FIRM WAS CONSTITUTED ON 7.2.2002 AND IT STARTED PRODUCTION FROM FINANCIAL YEAR 2002 - 2003. THE ASSESSEE WAS CLAIMING A ND WAS ALLOWED DEDUCTION UNDER SECTION 10B OF THE ACT FROM ITS INCEPTION AND ALSO FOR THE RELEVANT ASSESSMENT YEAR 2006 - 2007. THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IB FOR THE FIRST TIME AMOUNTING TO RS.21,46,646/ - IN ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2006 - 2007, AND THE COPY OF THE COMPUTATION OF INCOME HAS BEEN FILED IN THE COMPILATION BEFORE THE TRIBUNAL. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON 24.12.2008 HAS FILED A WRITTEN LETTER WITHDRAWING ITS CLAIM OF DEDUCTIO N UNDER SECTION 80IB OF THE ACT WITH THE AO. ON THIS AMOUNT OF CLAIM OF DEDUCTION UNDER SECTION 80IB FOR RS.21,64,646/ - , THE AO HAS LEVIED PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON ACCOUNT OF WRONG CLAIM OF DEDUCTION HOLDING THE SAME AS FURNISHING OF INACCURATE PARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT. THE CLAIM OF THE ASSESSEE IS THAT THE CLAIM OF DEDUCTION UNDER SECTION 80IB WAS MADE DUE TO SOME WRONG LEGAL CONCEPTION AND NOT TO HOODWINK THE DEPARTMENT. THE CLAIM OF THE ASSESSEE IS THAT MERELY BECAUSE THE ASSESSEES CLAIM OF DEDUCTION ULTIMATELY WAS NOT FOUND ACCEPTABLE BY THE DEPARTMENT, IT CANNOT BE SAID THAT THE ASSESSEE IS GUILTY OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. I FIND THAT THE ASSESSEE HAS DISC LOSED ALL MATERIAL FACTS RELEVANT TO ITS CLAIM OF DEDUCTION UNDER SECTION 80IB IN ITS STATEMENT OF INCOME FILED ALONG WITH ITS RETURN OF INCOME. A PERUSAL OF THE COPY OF THE STATEMENT OF INCOME FILED IN THE COMPILATION BEFORE THE TRIBUNAL CLEARLY ESTA BLISHES THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE IN ITS RETURN OF INCOME. IN MY CONSIDERED VIEW, IT IS A CLEAR CASE OF HONEST DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE REVENUE REGARDING THE ADMISSIBILITY OF A CLAIM OF DEDUCTION AS PER THE PRO VISIONS OF THE ACT. THERE CAN ALWAYS BE A DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE REVENUE REGARDING INTERPRETATION OF SOME PROVISION OF LAW. THERE IS NO MATERIAL ON RECORD BROUGHT ON BEHALF OF THE REVENUE TO SUGGEST THAT THE CLAIM OF THE ASSES SEE IN THIS REGARD WAS NOT BONA FIDE . I FIND THAT IN FACT THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB OF THE ACT WAS MADE BY THE AO ON THE BASIS OF THE CLAIM MADE IN THIS REGARD BY THE ASSESSEE IN ITS STATEMENT OF INCOME FILED ALONG WITH THE RETURN O F INCOME. THIS IS NOT THE CASE OF THE REVENUE THAT IT HAS GATHERED SOME OTHER MATERIAL NOT DISCLOSED BY THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDING. IT IS NOT THE LAW THAT WHEREVER THE ASSESSEES CLAIM OF DEDUCTION WAS FOUND NOT ACCEPTABLE B Y THE DEPARTMENT, THE ASSESSEE SHOULD BE VISITED WITH PENALTY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME UNDER SECTION 271(1)(C) OF THE ACT. IN THIS CASE, THE ASSESSEE HAS DURING THE COURSE OF ASSESSMENT PROCEEDINGS FILED A WRITTEN LETTER DATED 24 .12.2008 BEFORE THE AO WITHDRAWING C LAIM OF DEDUCTION UNDER SECTION 80IB. EVEN IF THE ASSESSEE HAS NOT WITHDRAWN ITS CLAIM OF DEDUCTION AND HAD INSISTED FOR ALLOWANCE OF DEDUCTION, EVEN THEN IN THE ABSENCE OF ANY MATERIAL BROUGHT ON RECORD TO IMPLICATE THE ASSESSEE, BY SHOWING THAT HIS CLAIM OF DEDUCTION WAS NOT BONA FIDE , IT CANNOT BE SAID THAT THE ASSESSEE IS GUILTY OF FILING INACCURATE PARTICULARS OF ITS INCOME. 7. I AM NOT IMPRESSED WITH THE ARGUMENTS OF THE LEARNED CIT - DR THAT IT IS A STRAIGHTFORW ARD CASE, AND IS NOT A CASE OF BONA FIDE AND WRONG LEGAL CONCEPTION ON THE ISSUE OF CLAIM OF DEDUCTION. MERELY BECAUSE THE AUDITOR OF THE ASSESSEE HAS NOT MADE THE CLAIM OF THE DEDUCTION, THE ASSESSEE IS NOT BARRED FROM MAKING A LEGAL CLAIM OF DEDUCTION W HILE FILING ITS RETURN OF INCOME. THE REQUIREMENT OF FILING OF AUDITORS CERTIFICATE ALONG WITH CLAIM OF DEDUCTION MADE BY THE ASSESSEE, IS A PROCEDURAL REQUIREMENT AND COULD BE COMPLIED WITH DURING THE COURSE OF ASSESSMENT PROCEEDINGS. I FIND THAT IT HAS BECOME A NORMAL PRACTICE OF THE DEPARTMENT TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT, WHEREVER SOME ADDITION IS MADE, OR A DISALLOWANCE IS MADE OR A DEDUCTION CLAIMED BY THE ASSESSEE IS NOT ACCEPTED BY THE DEPARTMENT, AND TO LEVY THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT, BY HOLDING THE ASSESSEE GUILTY OF EITHER CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THIS APPROACH OF THE REVENUE IS NOT SUSTAINABLE IN LAW. THE ARGUMENT THAT ONLY A SMALL PERCENTAGE OF INCOME TAX RETURNS ARE PICKED UP FOR SCRUTINY BY THE DEPARTMENT, AND THEREFORE THE PENALTY SHOULD BE LEVIED, WHEREVER VARIATION IS FOUND IN THE RETURNED AND ASSESSED INCOME OF AN ASSESSEE, IS WITHOUT ANY MERIT SINCE IT IS FOR THE DEPARTMENT TO DECIDE THAT HOW MANY INCOME TAX RETURNS ARE TO BE PICKED UP FOR SCRUTINY IN A PARTICULAR YEAR AND ON WHAT BASIS AND ANY JUDICIAL OFFICER OR CO URT COULD NOT TAKE SUCH IRRELEVANT FACT INTO CONSIDERATION, WHILE DECIDING THE VALIDITY OF PENALTY IMPOSED ON THE ASSESSEE. OTHER USUAL ARGUMENT OF THE DEPARTMENT FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS THAT, HAD THE CASE OF THE ASSESSEE NOT BEEN SELECTED FOR SCRUTINY ASSESSMENT, THE ASSESSEE WOULD HAVE ESCAPED WITH DEDUCTION, WHICH WAS OTHERWISE NOT ALLOWABLE TO THE ASSESSEE AS PER LAW. THIS ARGUMENT OF THE DEPARTMENT HAS NO LEGAL OR VALID BASIS, AND DEVOID OF ANY MERIT WHATSOEVER. THI S ARGUMENT IS TAKEN MERELY TO BURDEN THE ASSESSEE WITH THE PENALTY PROVISION UNDER SECTION 271(1)(C) OF THE ACT. IT IS A MATTER OF COMMON KNOWLEDGE THAT THE NORMS OF SELECTING A CASE FOR SCRUTINY ASSESSMENT ARE CHANGED YEAR AFTER YEAR AND NO ASSESSEE OR E VEN THE REVENUE OFFICERS ARE AWARE OF THE NORMS FOR SELECTION TO SCRUTINY ASSESSMENT IN ADVANCE, AND IT IS HIGHLY ILLOGICAL THAT ANY PRUDENT ASSESSEE SHALL SPECULATE WITH THE REVENUE BY MAKING A CLAIM OF D EDUCTION WHICH IT CONSIDERS NOT ALLOWABLE IN ACCOR DANCE WITH LAW, MERELY ON THE ASSUMPTION THAT ITS CASE MAY NOT BE SELECTED FOR SCRUTINY AND THE DEDUCTION NOT OTHERWISE ALLOWABLE TO IT, SHALL BE ALLOWED. IT IS WELL SETTLED THAT IN PENALTY PROCEEDINGS, THE ONUS IS ON THE REVENUE TO PROVE THAT THE ASSESS EE IS GUILTY OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN ORDER TO LEVY PENALTY UNDER SECTION 271(1)(C) OF THE ACT FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME, THE DEPARTMENT HAS TO ESTABLI SH THAT EITHER THE ASSESSEE IS GUILTY OF CONCEALMENT OF INCOME OR THE CLAIM OF THE ASSESSEE FOR DEDUCTION WAS NOT BONA FIDE AND WAS TO DEFRAUD THE REVENUE, NO SUCH MATERIAL HAS BEEN BROUGHT ON RECORD IN THIS CASE ON BEHALF OF THE REVENUE. IN FIND THAT THE DECISION OF THE HONBLE DELHI HIGH COURT IN CIT VS. ZOOM COMMUNICATION P. LTD. (SUPRA) IS OF NO HELP TO THE REVENUE. IN THIS CASE, THE FACTS WERE RECORDED THAT IN FACT THE ASSESSEE DID NOT CLAIM EITHER BEFORE THE AO OR BEFORE THE CIT(A) THAT SUCH A DEDUC TION WAS PERMISSIBLE UNDER SECTION 32(1)(III), AND THAT IT WAS ALSO NOT THE CASE OF THE ASSESSEE THAT IT WAS UNDER A BONA FIDE BELIEF THAT THESE TWO AMOUNTS COULD BE CLAIMED AS REVENUE EXPENDITURE. I FIND THAT NO SUCH CIRCUMSTANCES EXISTED IN THE CASE OF THE ASSESSEE BEFORE ME. I FIND MERE SUBMISSION OF A CLAIM WHICH IS INCORRECT IN LAW WOULD NOT AMOUNT TO GIVING INACCURATE PARTICULARS OF INCOME, BUT THE CLAIM MADE BY THE ASSESSEE HAS TO BE BONA FIDE . IF, IN A CASE THE REVENUE IS IN POSITION TO ESTABLISH THAT THE CLAIM MADE BY THE ASSESSEE WAS NOT ONLY INCORRECT IN LAW, BUT WAS MALA FIDE , EXPLANATION 1 TO SECTION 271(1)(C) WOULD APPLY TO THE FACTS OF THE CASE OF THE ASSESSEE AND THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT MAY BE LEVIABLE. 8. IN KAN BAY SOFTWARE INDIA (P) LTD., (SUPRA), WHEREIN THE ASSESSEE HAS MADE A WRONG CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT BY FLING REVISED RETURN OF INCOME, PUNE TRIBUNAL HELD THAT RAISING A LEGAL CLAIM, EVEN IF IT IS ULTIMATELY FOUND TO BE LEGALLY UNACC EPTABLE, CANNOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE ADMISSION OR REJECTION OF A CLAIM HAS NOTHING TO DO WITH FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE TRIBUNAL HAS OBSERVED THAT WHAT IS THE CORRECT CLAIM AND WHAT IS AN INCORRECT CLAIM IS A MATTER OF PERCEPTION. THE TRIBUNAL HAS FURTHER OBSERVED THAT INACCURATE IS SOMETHING FACTUALLY INCORRECT AND INTERPRETATION OF LAW CAN NEVER BE A FACTUAL ASPECT, AND JUST BECAUSE AN AO DOES NOT ACCEPT AN INTERPRETATION, SUCH AN INT ERPRETATION IS NOT RENDERED INCORRECT. EVEN THE JUDGMENTS OF THE HONBLE SUPREME COURT ARE REVERSED BY THE LARGER BENCHES OF THE HONBLE SUPREME COURT. THE DEVELOPMENT OF LAW IS A DYNAMIC PROCESS WHICH IS AFFECTED BY THE INNUMERABLE FACTORS, AND IT IS A LWAYS AN ONGOING EXERCISE. IN SUCH CIRCUMSTANCES, A BONA FIDE LEGAL CLAIM BY THE ASSESSEE BEING VISITED WITH PENAL CONSEQUENCES, ONLY BECAUSE IT HAS NOT BEEN ACCEPTED THUS FAR BY THE TAX AUTHORITIES OR JUDICIAL AUTHORITIES, IS AN ABSURDITY. THE TRIBUNAL HAS FURTHER OBSERVED THAT DEEMING FICTION OF EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT CAN ONLY BE PRESSED INTO SERVICE IN CONNECTION WITH FACTS MATERIAL TO THE COMPUTATION OF INCOME AND NOT IN CONNECTION WITH THE COMPUTATION OF INCOME PER SE. THE PUNE TRIBUNAL HAS FURTHER OBSERVED THAT IN THE PRESENT CASE THERE IS NO DISPUTE THAT ALL THE RELEVANT FACTS MATERIAL TO THE COMPUTATION OF TOTAL INCOME ARE DULY FURNISHED BY THE ASSESSEE AND NO DEFICIENCIES IN FURNISHING OF SUCH FACTS ARE POINTED OUT BY TH E AUTHORITIES BELOW. THE EXPRESSION BONA FIDE NEEDS TO BE CONSIDERED IN A FAIR AND OBJECTIVE MANNER AND IN THE LIGHT OF HUMAN PROBABILITIES. I FIND THAT THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE, BEFORE ME, ARE AKIN TO THE CASE OF KANBAY SOFTWARE INDIA (P) LTD. (SUPRA) BEFORE THE PUNE TRIBUNAL. 9. I FIND THAT AS ALL THE MATERIAL AND RELEVANT FACTS TO THE COMPUTATION OF TOTAL INCOME ARE DULY FURNISHED BY THE ASSESSEE, AND NO DEFICIENCIES IN FURNISHING OF SUCH FACTS ARE POINTED OUT BY THE DEPARTMENT, I FIND THAT THE DEEMING FICTION OF THE EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE, AS THE EXPLANATION OF THE ASSESSEE IS BONA FIDE AND THE ASSESSEE HAS DISCLOSED ALL MATERIAL FACTS RELEVANT TO THE COMPUTATION OF INCOME BEFORE THE AO. I FIND T HAT THE RATIO OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD., (2010) 322 ITR 158 (SC) WHEREIN HELD THAT MERE MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS, APP LIES TO THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE. IN CIT VS. DARAMPAL PREMCHAND LTD. (2010) 329 ITR 572 (DEL), FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN RELIANCE PETRO PRODUCTS PVT. LTD. (SUPRA) DELETED THE PENALTY ON THE DENIAL O F CLAIM OF DEDUCTION UNDER SECTION 80IA AND 80IB TO THE ASSESSEE. IN MY CONSIDERED OPINION, EVEN A WELL REASONED ORDER PASSED BY THE AO OR THE CIT(A) CAN BE REVERSED IN APPEAL, PROVIDED, IT IS FOUND THAT THE ORDER OF THE REVENUE AUTHORITIES IS NOT AS PER LAW OR IS BASED ON WRONG APPRECIATION OF THE FACTS OF THE CASE, AND ACCORDINGLY, THE APPELLATE COURT WOULD BE WELL WITHIN ITS JURISDICTIONAL TO REVERSE THE ORDERS OF THE AUTHORITIES BELOW BY PASSING AN APPROPRIATE ORDER BY ASSIGNING ITS OWN REASON AS TO W HY IT DISAGREES WITH THE REASONS AND FINDING OF THE LOWER AUTHORITIES. 10. I FIND THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB IS BONA FIDE SINCE THE REASON EXPLAINED BY THE ASSESSEE FOR CLAIMING THE DEDUCTION, FOR THE FIRST TIME, FOR THE RELEVANT ASSESSMENT YEAR WAS THAT THE LEGAL PERCEPTION OF THE ASSESSEE WAS THAT THE RELEVANT DATE FOR DEDUCTION IS THE DATE OF INCEPTION, AND HENCE IT IS ELIGIBLE FOR BENEFIT, ALTHOUGH THIS PERCEPTION OF THE ASSESSEE WAS INCORRECT IN LAW, AND LIABLE TO BE REJECTED, BUT DOES NOT FALL IN THE CATEGORY OF NOT THE BONA FIDE CLAIM MADE BY THE ASSESSEE. IN ZYCUS INFOTECH (P) LTD. VS. ITO, (2007) 17 SOT 310 (MUMBAI), THE MUMBAI TRIBUNAL CANCELLED THE PENALTY ON DENIAL OF THE EXEMPTION UNDER SECTION 10A WHICH WAS MADE ON WRONG UNDERSTANDING OF LAW AND NOT ALLOWABLE AS PER THE PROVISION OF LAW. IN ACIT VS. PERFECT FORGINS (2011) 15 TAXMANN.COM 54 (CHD) HELD THAT THE PENALTY UNDER SECTION 271(1)(C) IS NOT LEVIABLE IN RESPECT OF NON - ALLOWANCE OF DEDUCTION UNDER SECTION 80IB OF THE ACT. 11. IN VIEW OF THE LAW LAID DOWN BY THE VARIOUS HONBLE COURTS AS DISCUSSED ABOVE AND THE FACTS OF THE CASE OF THE ASSESSEE, I HOLD THAT THE CLAIM MADE BY THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT WAS A BONA FIDE CLAIM AND DOES NOT AMOUNT TO FILING OF INACCURATE PARTICULARS OF INCOME, AND THEREFORE THE ASSESSEE IS NOT LIABLE TO PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. ACCORDINGLY, I AGREE WITH THE ORDER OF THE LEARNED JM ON THE ISSUE RECORDED IN THE POINT OF DIFFERENCE BY THE LEARNED JM AND THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, AND THE POINTS OF DIFFERENCE REFERRED TO ME BY THE LEARNED JM AND THE LEARNED AM ARE ANSWERED ACCORDINGLY. 12 . THE MATTER WILL NOW G O BACK TO THE DIVISION BENCH FOR PASSING ORDER IN ACCORDANCE WITH MAJORITY VIEW. SD/ - (G.C. GUPTA) VICE - PRESIDENT (THIRD - MEMBER) PLACE : AHMEDABAD DATE : 24 - 06 - 2013 N : : IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT ITA NO. 01/RJT/2012 9R R / ASSESSMENT YEAR : 2006 - 07 M/S. MERIDIAN IMPEX, V. ACIT, CIRCLE - 2, JAMNAGAR C/O. D R ADHIA, M SHRI PADMALAYA B/S. TRIKAMRAIJI HAVELI, 16, JAGNATH PLOT, IMPERIAL PALACE, DR. YAGNIK ROAD, RAJKOT PAN : AAGFM8589G REFERENCE U/S 255 (4) OF THE I - T ACT, 1961 THE POINT OF DIFFERENCE PROPOSED BY THE LEARNED JUDICIAL MEMBER DOES NOT, IN MY VIEW, BRING OUT THE POINT OF DIFFERENCE TRULY AND CORRECTLY. I THEREFORE PROPOSE THE FOLLOWING POINTS OF DIFFERENCE FOR OPINION OF THIRD MEMBER TO BE APPOINTED U/S 255(4) OF THE I - T ACT, 1961. 1. WHETHER A WELL - REASONED ORDER PASSED BY THE CIT(A) CAN BE REVERSED OR OTHERWISE INTERFERED WITH BY THIS TRI BUNAL WITHOUT RECORDING REASONS FOR DISAGREEING WITH IT. 2. WHETHER THE CASE OF THE ASSESSEE, ON THE FACTS STATED IN THE DISSENTING NOTE OF THE AM, IS COVERED BY EXPLANATION 1 TO SECTION 271(1)(C). SD/ - ( . . K / D. K. SRIVASTAVA) 2013 / ACCOUNTANT MEMBER RAJKOT: 29 .04.2013 N , IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. E . . 3 , =R K E . . EK , K BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SRIVASTAVA, AM IT A NO .01/RJT/2012. 9R R / ASSESSMENT YEAR 2006 - 07 M/S MERIDIAN IMPEX, C/O D R ADHIA, OM SHRI PADMALAYA BESIDE TRIKAMRAIJI HAVELI, 16, JAGNATH PLOT IMPERIAL PALACE, DR.YAGNIK ROAD, RAJKOT. PAN: AAGFM8589G ( / APPELLANT) VS. ACIT CIRCLE - 2 N / RESPONDENT REFERENCE U/S 255 (4) OF THE I.T. ACT, 1961 AS THERE IS A DIFFERENCE OF OPINION BETWEEN THE MEMBERS OF THE BENCH WHO HEARD THIS APPEAL, THE SAME IS REFERRED TO THE HONBLE PRESIDENT OF INCOME TAX APPELLATE TRIBUNAL FOR NECESSARY ACTION AS ENVISAGED U/S. 255(4) OF THE INCOM E TAX ACT, 1961: - WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS CORRECT IN CONFIRMING THE PENALTY OF RS.7,28,621/ - LEVIED BY THE AO U/S. 271(1)(C) OF THE INCOME TAX ACT, 1961 OR IT SHOULD BE CANCELLED AS PROPOSED BY JUDICIAL MEMBER ? XXX SD/ - ( . . K / D. K. SRIVASTAVA) ( . . R / T. K. SHARMA) ACIT / ACCOUNTANT MEMBER 9 K / JUDICIAL MEMBER / ORDER DATE - 04 - 2013 /RAJKOT N , IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. E . . 3 , =R K E . . EK , K BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SRIVASTAVA, AM IT A NO .01/RJT /2012. 9R R / ASSESSMENT YEAR 2006 - 07 M/S MERIDIAN IMPEX, C/O D R ADHIA, OM SHRI PADMALAYA BESIDE TRIKAMRAIJI HAVELI, 16, JAGNATH PLOT IMPERIAL PALACE, DR.YAGNIK ROAD, RAJKOT. PAN: AAGFM8589G ( / APPELLANT) VS. ACIT CIRCLE - 2 N / RESPONDENT 9REB / ASSESSEE BY SHRI VIMAL DESAI K B / REVENUE BY SHRI AVINASH KUMAR B /DATE OF HEARING 16.7.2012 B / DATE OF PRONOUNCEMENT - 0 8 - 2012 / ORDER . . 3 , =R K / T. K. SHARMA, J. M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 1.12.2010 OF CIT(A) CONFIRMING THE PENALTY OF RS.7 , 28,621/ - LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME TAX ACT, 1961(THE ACT) FOR THE ASSESSMENT YEAR 2006 - 07. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF BRASS ITEMS. IT IS A 100% EXPORT ORIENTED UNIT AND ITS INCOME IS EXEMPT U/S 10B OF THE ACT. THIS FIRM WAS CONSTITUTED ON 7.2.2002 AND STARTED PRODUCTION FROM THE FINANCIAL YEAR 2002 - 03. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 28,91,892 / - ON 31.12.2006. IN THIS RETURN, THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.36,02,046/ - AND ALSO DEDUCTION OF RS.21,64,646/ - UNDER SECTIONS 10B AND 80IB RESPECTIVELY. THE AO FRAMED ASSESSMENT U/S 143(3) ON 31.12.2008 ON A TOTAL INCOME OF RS.50,56,538/ - , WHEREIN HE DISALLOW ED THE DEDUCTION OF RS.21,46,648/ - CLAIMED U/S 80IB OF THE ACT AND ALSO INITIATED PENALTY PROCEEDINGS U/S 271(1)( C ) OF THE ACT. SUBSEQUENTLY VIDE ORDER DATED 24.6.2009 IN RESPECT OF WRONG CLAIM OF DEDUCTION U/S 80IB OF THE ACT AMOUNTING TO RS.21,6 4,646/ - THE AO LEVIED PENALTY U/S 271(1)(C) OF THE ACT AMOUNTING TO RS.7,28,621/ - . THE AO LEND AGAINST THIS PENALTY ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). 3. B EFORE THE LD. CIT(A), THE ASSESSEE PLEADED THAT PENALTY U/S 271( 1)(C) IS NOT LEVIABLE FOR THE FOLLOWING REASONS : 1. THE PENALTY HAS BEEN LEVIED FOR THE REASONS THAT DEDUCTION U/S 80IB WAS CLAIMED THOUGH NOT ADMISSIBLE. THUS, THIS IS NOT A CASE OF CONCEALMENT NOR OF FURNISHING INACCURATE PARTICULARS OF INCOME AND N OT THE CASE OF CLAIMING A DEDUCTION WHICH . 2. AS MENTIONED AT PARA 1 OF THE ASSESSMENT ORDER, FULL DETAILS AND RELEVANT ACCOUNTS WERE FILED WITH THE RETURN OF INCOME. THUS, THE LD. A. O. CERTIFIES THAT FULL DETAILS WERE MADE AVAILABLE. 3. IF ANY ASSE SSEE FAILS TO MAKE A CLAIM REGARDING ANY DEDUCTION, IT IS SETTLED POSITION THAT THE SAME IS NOT AVAILABLE THEREAFTER AND THERE IS NO COLUMN IN THE RETURN OF INCOME AS WAS AVAILABLE IN PAST LIKE PART IV WHERE ANY SUCH CLAIMS CAN BE SHOWN. BUT NOW THERE IS NO SUCH COLUMN. IF ANY ASSESSEE IN DILEMMA, IF HE DOES NOT MAKE THE CLAIM, HE LOSES AND IF HE MAKES THE CLAIM THEN WHAT IS TO BE CONSIDERED IS: 1. WHETHER RELEVANT DETAILS ARE FURNISHED ALONG WITH THE RETURN? 2. THOUGH CLAIM NOT ADMISSIBLE, NO DETAIL S AT ALL ARE FURNISHED OR THE PARTICULARS FURNISHED, FOUND TO BE INACCURATE. 4 .. IN THE CASE MENTIONED AT 3.1 ABOVE, PENALTY DOES NOT ATTRACT SINCE AN ASSESSEE MUST BE GIVEN LIBERTY TO MAKE CLAIM BUT WITH ALL RELEVANT DETAILS. IN THE CASE MENTIONED AT 3 .2, THE PENALTY DOES ATTRACT, SINCE INACCURATE PARTICULARS ARE FURNISHED. 5. OURS IS A CASE OF CLAIMING DEDUCTION WITH FURNISHING OF RELEVANT ACCURATE PARTICULARS AND NOT A CASE OF FURNISHING INACCURATE PARTICULARS. PENALTY CANNOT BE LEVIED IN SUCH CASE. 6. MOREOVER ALSO, THE CONDITION THAT PRODUCTION STARTED IN THE FINANCIAL YEAR 2002 - 03 HAS A BACKGROUND THAT IN 2001 - 02 THE MANUFACTURING PROCESS HAD ALREADY COMMENCED AND THEREFORE THE RELEVANT CONDITION THEREFORE CAN BE TAKEN AS. 7. THE CASE IS FULLY COVERED BY THE RECENT DECISIONS OF THE HON. SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS WHERE THE HON. COURT HAS BEEN PLEASED TO HOLD THAT PENALTY DOES NOT ATTRACT MERELY FOR MAKING A CLAIM WHICH IS FOUND TO BE NOT ADMISSIBLE. (E NCLOSED HEREWITH THE COPY OF THE SAID JUDGMENT FOR YOUR KIND PERUSAL.) 8. TAKING INTO CONSIDERATION THE CO - OPERATION EXTENDED AND OVERALL FACTS OF THE CASE, IT IS REQUESTED THAT PENALTY LEVIED MAY KINDLY BE ORDERED TO BE DELETED. CIT V/S RELIANCE PETR OPRODUCTS (SUPREME COURT) S. 271(1) (C) PENALTY CANNOT BE IMPOSED EVEN FOR MATING UNSUSTAINABLE CLAIMS THE ASSESSEE CLAIMED DEDUCTION U/S 36(1)(III) FOR INTEREST PAID ON LOAN TAKEN FOR PURCHASE OF SHARES. THE AO DISALLOWED THE INTEREST U/S 14A AND LEVIED PENALTY U/S 271 (I) (C) ON THE GROUND THAT THE CLAIM WAS UNSUSTAINABLE. THE PENALTY WAS DELETED BY THE APPELLATE AUTHORITIES. ON APPEAL BY THE DEPARTMENT TO THE SUPREME COURT, HELD DISMISSING THE APPEAL: (I) S. 271 (1) (C) APPLIES WHERE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME'. THE PRESENT WAS NOT A CASE OF CONCEALMENT OF THE INCOME: AS REGARDS THE FURNISHING OF INACCURATE PARTICULARS, NO INFO RMATION GIVEN IN THE RETURN WAS FOUND TO BE INCORRECT OR INACCURATE. THE WORDS 'INACCURATE PARTICULARS' MEAN THAT THE DETAILS SUPPLIED IN THE RETURN ARE NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TRUTH OR ERRONEOUS. IN THE ABSENCE OF A FINDING BY THE AO THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE, THERE WOULD BE NO QUESTION OF INVITING PENALTY U/S 271 (1 )(C). (II) THE ARGUMENT OF THE REVENUE THAT 'SUBMITTING AN INCORRECT CLAIM FOR EX PENDITURE WOULD AMOUNT TO GIVING INACCURATE PARTICULARS OF SUCH INCOME' IS NOT CORRECT. BY NO STRETCH OF IMAGINATION CAN THE MALTING OF AN INCORRECT CLAIM IN LAW TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. A MERE MAKING OF THE CLAIM, WHICH IS NOT SUS TAINABLE IN LAW. BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. IF THE CONTENTION OF THE REVENUE IS ACCEPTED THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY U/S 271(1)(C). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. 4. AFTER CONSIDERING THE AFORESAID SUBMISSIONS IN THE IMPUGNED ORDER THE LD. CIT(A) CONFIRMED THE PENALTY FOR THE DETAILS REASONS GIVEN IN PARAGRAPH 5 WHICH READS AS UNDER : 5. I HAVE CAREFULLY CONSIDERED THAT ISSUE, IT IS SEEN THAT ASSESSING OFFICER HAS IMPOSED PENALTY U/S . 271 (1)(C) ON ADDITION OF RS.21,64,646/ - BEING WRONG CLAIM MADE U/S.80IB OF THE ACT. IT IS SEEN THAT THE APPELLANT IS 100% E OU AND ITS INCOME IS EXEMPT U/S. 10B OF THE ACT. APART FROM CLAIMING EXEMPTION U/S 10B, THE APPELLANT HAS CLAIMED FURTHER DEDUCTION U/S.80IB. THE APPELLANT FIRM WAS CONSTITUTED IN FINANCIAL YEAR 2002 - 2003. HENCE IT WAS NOT ELIGIBLE TO CLAIM DEDUCTION U/S .80IB OF THE ACT. THE APPELLANT HAS MADE CLAIM U/S .80IB IN THE COMPUTATION OF INCOME AND RETURN. THE SAID CLAIM WAS NOT SUPPORTED BY CERTIFICATE OF CHARTERED ACCOUNTANT AS REQUIRED BY THE SAID SECTION. IN TAX AUDIT REPORT ALSO. AUDITOR HAS STATED TO HAVE NIL DEDUCTION UNDER CHAPTER VI A. HENCE PURPOSEFULLY, THE SAID WRONG CLAIM WAS MADE IN RETURN OF INCOME TO DEFRAUD THE REVENUE. IT CANNOT BE SAID TO BE A BONAFIDE CLAIM AS CONTENDED BY AR. THERE IS NO UNCERTAINTY ABOUT ELIGIBILITY OF APPELLANT IN MAKING CL AIM U / S.80IB. IT IS A CASE WHERE NO SAME INCOME DEDUCTION U/S 10B & 80LB, BOTH HAVE BEEN CLAIMED TO DEFRAUD THE REVENUE. IT WAS CLAIMED SIMPLY AS DEDUCTION IN RETURN OF INCOME WITHOUT ANY SUPPORTING DOCUMENTS, WORKING OR REPORT OF CHARTERED ACCOUNTANT. IF THE CASE OF THE APPELLANT WAS NOT SCRUTINIZED, THEN THE CLAIM GOES UNATTENDED. THE APPELLANT HAS NOT COME FORWARD AND WITHDRAWN WRONG CLAIM, IT WAS ASSESSING OFFICER. WHO HAS FOUND OUT IN THE COURSE OF ASSESSMENT. THE DECISION RELIED ON AR IS THUS CLEARLY DISTINGUISHABLE ON FACTS. HENCE IN MY CONSIDERED OPINION. THIS IS TIT CASE FOR LEVY OF PENALTY AND ACTION OF ASSESSING OFFICER IS UPHELD. 5. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6 . AT THE TIME OF HEARING BEFORE US, SHRI VIMAL DESAI, THE LD. AR APPEARED ON BEHALF OF THE ASSESSEE AND POINTED OUT THAT THE PENALTY IS NOT LEVIABLE AND CONTENDED THAT DURING THE COURSE OF ASSESSMENT PROCEEDING THE AO QUESTIONED THE DEDUCTION U/S 80IB ON THE FOLLOWING GROUNDS : (I) THE DEDUCTION U/S 80 - IB WAS CLAIMED FOR THE FIRST TIME AND AUDIT REPORT IN FORM NO.1OCCB WAS NOT FILED WITH RETURN OF INCOME. (II) 'THE APPELLANT CLAIMED DEDUCTION U/S. 80 - IB ON THE FULL AMOUNT OF PROFIT OF THE BUSINESS DESPITE HAVING CLAIMED BENEFIT OF SECTION 10B. 6. 1 THE AO DID NOT SATISFY WITH THE EXPLANATION OF THE ASSESSEES REPRESENTATIVE AND HE DISALLOWED THE DEDUCTION U/S. 80 - IB AND ALSO VIDE ORDER SHEET EN TRY DATED 17.12.2008, THE AO ASKED THE ASSESSEE TO FURNISH THE DATE OF BEGINNING OF PRODUCTION/MANUFACTURE OF THE BRASS PART ARTICLES. IN REPLY TO THIS QUERY THE ASSESSEE VIDE LETTER DATED 24.12.2008 HAS WITHDRAWN THE CLAIM OF DEDUCTION U/S. 80 - IB. THE C ONTENT OF THE SAID LETTER IS REPRODUCED BELOW: : 'WITH REFERENCE TO THE ABOVE AND FURTHER TO OUR DISCUSSION AND AS PER YOUR REQUIREMENT WE SUBMIT YOU DETAILS AS UNDER: REGARDING CLAIM MADE BY THE FIRM IN THE RETURN OF INCOME U/S. 80 - IB OF THE INCOME TAX ACT AND AS STATED BY YOUR HONOUR TO PROVIDE THE DETAILS OF FULFILLMENT OF ALL THE CONDITIONS REQUIRED FOR CLAIMING DEDUCTION U/S. 80 - IB. WE SHALL LIKE TO STATE THAT MERIDIAN IMPEX, PARTNERSHIP FIRM WAS FORMED ON 7TH FEBRUARY, 2002 FOR MANUFACTURING AND EXPORT OF BRASS ITEMS. FIRM HAS STARTED PRODUCTION IN THE FINANCIAL YEAR 2002 - 03. ONE OF THE CONDITIONS REQUIRED TO BEFULFILLED FOR CLAIMING DEDUCTION U/S. 80 - IB IS THAT THE FIRM SHOULD HAVE STARTED PRODUCTION IN THE FINANCIAL YEAR 2001 - 02 BUT FIRM HAS ST ARTED PRODUCTION IN THE FINANCIAL YEAR 2002 - 03 AND HENCE IS NOT FULFILLING THE CONDITION OF STARTING PRODUCTION IN THE FINANCIAL YEAR 2001 - 02. CONSIDERING THE ABOVE FACTS WE HEREBY WITHDRAW OUR CLAIM OF DEDUCTION U/S. 80 - IB OF THE I. T. ACT. FURTHER WE SHALL LIKE TO STATE THAT THE DEDUCTION U/S. 80 - IB WAS CLAIMED UNDER THE BONAFIDE BELIEF THAT THE SAME IS AVAILABLE FROM THE YEAR OF INCEPTION, BUT AS THE FIRM HAS NOT STARTED PRODUCTION IN THE SAME YEAR I.E. FINANCIAL YEAR 2001 - 02 AND HAS STARTED PRODUCTIO N IN THE SUBSEQUENT YEAR THE SAME IS NOT AVAILABLE ' 6.2 THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT ON THE BASIS OF THE SUBMISSION OF THE LETTER DATED 24.12.2008 COMPLETED THE ASSESSMENT DENYING THE BENEFIT OF DEDUCTION U/S 80IB. THIS ACTION OF THE AO WAS NOT AGITATED AND THE ASSESSMENT ORDER WAS ATTAINED FINALITY. 6.3 IN THE AFORESAID BACKGROUND , THE LD. COUNSEL FOR THE ASSESSEE PLEADED THAT THE PENALTY LEVIED BY THE AO U/S 271(1)(C ) AND CONFIRMED BY THE LD.CIT(A) BE DELETED. 6.4 W ITH R EGARD TO THE CONTENTION OF THE AO THAT THE DEDUCTION U/S 80IB WAS CLAIMED FOR THE FIRST TIME AND AUDIT REPORT IN FORM NO.10CCB WAS NOT FILED WITH RETURN OF INCOME. THE CONTENTION OF THE LD. COUNSEL, IN THIS RESPECT, IS THAT THE REASONS FOR NOT FILIN G THE AUDIT REPORT IN FORM NO.10CCB ARE THAT IT IS A PROCEDURAL REQUIREMENT. HE SUBMITTED THAT IT HAS BEEN HELD NUMBER OF TIMES THAT IF THE AUDIT REPORT IS FILED BEFORE THE COMPLETION OF ASSESSMENT PROCEEDINGS, THE DEDUCTION IS ALLOWABLE. THE LD . COUNSEL SUBMITTED THAT IF THE ASSESSEE HAD NOT WITHDRAWN THE CLAIM OF DEDUCTION U/S 80IB , THE AUDIT REPORT WOULD HAVE BEEN FILED BEFORE THE COMPLETION OF ASSESSMENT PROCEEDINGS THOUGH NOT FILED WITH RETURN OF INCOME. IT IS A SETTLED PRO POSITION OF LAW TH AT MERE NON - FILING OF AUDIT REPORT WITH RETURN OF INCOME CANNOT BE A GROUND TO DENY THE DEDUCTION. THEREFORE, HE PLEADED THAT THE PENALTY IMPOSED ON THIS GROUND MAY BE DELETED. 6.5 WITH REGARD TO THE OTHER CONTENTION OF THE AO THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80IB ON THE FULL AMOUNT OF PROFIT OF THE BUSINESS DESPITE HAVING CLAIMED BENEFIT OF SECTION 10B . THE CONTENTION OF THE LD.COUNSEL OF THE ASSESSEE, IN THIS RESPECT, IS THAT THE REASON FOR CLAIMING DEDUCTION U/S 80IB AND EXEMPTION U/S 10B IS PURELY A LEGAL ISSUE. HE SUBMITTED THAT IT HAS BEEN HELD SEVERAL TIMES THAT THOUGH SECTION 10A I , 10B ETC. FALL UNDER CHAPTER III WHICH ADDRESSES INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE BENEFIT GRANTED UNDER THOSE SECTIONS IS DEDUCTION IN NATURE. SECTION 10B(6)(III) DENIES DEDUCTION U/S. 80 - IB IN POST TAX HOLIDAY PERIOD ONLY AND SECTION 80 - I A(9) WHICH IS APPLICABLE TO 80 - IB ALSO DENIES THE DEDUCTION UNDER ANY OTHER SECTION OF CHAPTER VI - A ONLY. HE F URTHER SUBMITTED THAT THE QUESTION OF MULTIPLE DEDUCTIONS ON PROFITS OF THE UNDERTAKING WAS HIGHLY DEBATABLE AT THE RELEVANT POINT OF TIME IN V IEW OF DIVERGENT VIEW OF COURTS AND TRIBUNALS IN THIS REGARD. THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT PENALTY U/S 271(1) (C ) IS NOT ATTRACTED ON THIS GROUND AND HENCE THE SAME MAY BE DELETED. 6.6 THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE AO INFLICTED THE PENALTY ON THE GROUND THAT IF THE ASSESSMENT WOULD NOT BEEN SCRUTINIZED SUCH WRONGFUL CLAIM OF DEDUCTION WOULD HAVE GONE UNNOTICED AND THE LD. CIT(A) HAS ALSO CONFIRMED THE VIEW OF THE AO. THE LD. COUNSEL FOR THE ASSESS EE, IN THIS RESPECT SUBMITTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B, AND THE CASE OF THE ASSESSEE COMES UNDER MANDATORY SCRUTINY CRITERIA AND THE ASSESSEE WAS WELL AWARE OF THIS LAW POSITION SINCE THE ASSESSEE HAS ALREADY FACED S CRUTINY PROCE EDINGS IN THE EARLIER ASSESSMENT YEARS FOR CLAIMING DEDUCTION U/S 10B. ON THE BASIS OF ABOVE CONTENTIONS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VIEW OF THE A.O. THAT THE ASSESSEE WAS EXPECTING PASSING OF THE CLAIM WITHOUT BEING NOTICED IS MISPLACED AND MISDIRECTED. IN SUPPORT OF HIS CONTENTIONS, HE PLACED RELIANCE ON THE ASSESSMENT ORDERS FOR PREVIOUS YEARS . IT WAS A CASE WHERE THE ASSESSEE MADE A CLAIM UNDER A LEGAL PERCEPTION WITH COMPLETE AWARENESS THAT SUCH CLAIM SHALL BE MANDATOR ILY EXAMINED. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEGAL PERCEPTION OF THE ASSESSEE WAS BONAFIDE, AND HENCE HE CLAIMED DEDUCTION U/S 80IB AND THE CLAIM IN CASE OF A MANDATORY ASSESSMENT WOULD NOT HAVE BEEN PREFERRED. THE LD. COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE LD. CIT(A) BE DELETED AS THE CLAIMED WAS MADE UNDER THE BONAFIDE BELIEF AND NOT INTENTIONAL. 6.7 THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REASON FOR PUTTING FORWARD THE CLAIM OF DEDUCTION U/S 80IB IN THE YEAR UNDER APPEAL FOR THE FIRST TIME WAS THE LEGAL PERCEPTION OF THE ASSESSEE THAT THE RELEVANT DATE FOR DEDUCTION IS DATE OF INCEPTION AND HENCE IT IS ELIGIBLE FOR THE BENEFIT. THOUGH THIS PERCEPTION WAS INCORRECT IN LAW, THE CLAIM WAS APPARENT DISALLOWED IN THE RETURN OF INCOME AND THE SAME WAS ALWAYS GOING TO BE EXAMINED BY THE AO IN MANDATORY ASSESSMENT OF THE ASSESSEE . THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO MALAFIDE INTENTION OF THE ASSESSE E TO CLAIM DEDUCTION AND HENCE NO PENALTY IS ATTRACTED TO THE IMPUGNED CLAIM OF THE ASSESSEE ON THE GROUND OF CLAIM FOR THE FIRST TIME. 6.8 WITH REGARD TO THE CONTENTION OF THE AO REGARDING NIL DEDUCTION IN TAX AUDIT REPORT IS NOT MATERIAL AS TAX AUDIT REPORT NEITHER BINDS THE ASSESSEE NOR THE A.O. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT E VEN OTHERWISE, IT IS EVIDENT THAT THE SAME TAX AUDITOR HAD PREPARED THE CO MPUTATION OF INCOME ON BEHALF OF THE ASSESSEE WHEREIN DEDUCTION U/S 80LB WAS CLAIMED. THEREFORE, THE VIEW OF THE AO THAT THE NIL DEDUCTION IN TAX AUDIT REPORT IS NOT MATERIAL AS TAX AUDIT REPORT NEITHER BINDS THE ASSESSEE NOR THE A.O HAS NO LOGICAL BAS IS, THEREFORE, THE PENALTY IS NOT LEVIABLE. 6.9 THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ASSESSMENT ORDER AND SUBMITTED THAT IT IS NOT A CASE WHERE THE A.O. UNEARTHED THE NON AVAILABILITY OF THE DEDUCTION OR ANY MATERIAL FACTS IN RELATION THERETO. HE FURTHER SUBMITTED THAT I T IS ABUNDANTLY VISIBLE FROM THE ASSESSMENT ORDER THAT THE AO VIDE ORDER SHEET ENTRY, ASKED FOR THE DATE OF BEGINNING OF PRODUCTION. AT THIS JUNCTURE, THE ASSESSEE RE - EXAMINED ITS CLAIM, SOUGHT EXPERT ADVICE AND FOUND THAT THE DATE OF COMMENCEMENT OF PRODUCTION IS RELEVANT FOR THE DEDUCTION U/S. 80 - IB AND NOT THE DATE OF INCEPTION OF THE FIRM. ON REALIZ ING ITS MISTAKE, THE ASSESSEE IMMEDIATELY CORRECTED THE SAME AND WITHDREW THE CLAIM. 6.10 THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ASSESSMENT ORDER AND SUBMITTED THAT THAT THE DENIAL/WITHDRAWAL OF CLAIM IS BASED ON RELEVANT CONSIDER ATION OF THE CONDITIONS PRESCRIBED UNDER SECTION 80IB ONLY AND NO OTHER PARTICULARS FROM ANY EXTERNAL SOURCES HAS BEEN REFERRED TO. HE SUBMITTED THAT IT IS A CASE WHERE AN INCORRECT CLAIM WAS PREFERRED ON DISCLOSING THE RELEVANT PARTICULARS IN APPARENT MANNER. IT WAS THE ASSESSEE WHO CAME OUT WITH WITHDRAWAL OF CLAIM ON THE RELEVANT POINT OF DATE OF COMMENCEMENT OF PRODUCTION BEFORE THE A.O. FOUND IT. THEREFORE, ON THE BASIS OF ABOVE SUBMISSIONS, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE WITH DRAWAL OF CLAIM IS VOLUNTARY. 6.11 . THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT A WRONG CLAIM PREFERRED THROUGH BONAFIDE MISTAKE BUT IN TRANSPARENT MANNER DOES NOT DESERVE TO BE PENALIZED AND IN SUPPORT OF HIS CONTENTION HE PLACED RELIANCE ON THE DECISION OF THE HONBLE PUNJAB & HARYANA H IGH COURT IN CASE OF SIDHARTHA ENTERPRISES (2010) 322 ITR 80 (P&H) AND SUBMITTED THAT IN THIS CASE, THE ASSESSEE HAD MADE A WRONG CLAIM OF CAPITAL LOSS AGAINST BUSINESS LOSS WHICH HAS BEEN EXPRESSLY DENIE D IN THE STATUTE. IN THE CONTEXT OF PENALTY ON SUCH CLAIM, THE HIGH COURT OBSERVED AS UNDER: THE JUDGMENT OF THE SUPREME COURT IN UNION OF INDIA VS: DHARAMENDRA TEXTILE PROCESSORS & ORS. (2008) 219 CTR (SC) 617 : (2008) 306 ITR 277 (SC) CANNOT BE READ A S LAYING DOWN THAT IN EVERY CASE WHERE PARTICULARS OF INCOME ARE INACCURATE, PENALTY MUST FOLLOW. WHAT HAS BEEN LAID DOWN IS THAT QUALITATIVE DIFFERENCE BETWEEN CRIMINAL LIABILITY UNDER S. 276CAND PENALTY UNDER S. 271(L)( C) HAD TO BE KEPT IN MIND AND APPROACH ADOPTED TO THE TRIAL OF A CRIMINAL CASE NEED NOT BE ADOPTED WHILE CONSIDERING THE LEVY OF PENALTY. EVEN SO, CONCEPT OF PENALTY HAS NOT UNDERGONE CHANGE BY VIRTUE OF THE SAID JUDGMENT. PENALTY IS IMPOSED ONLY WHEN THE RE IS SOME ELEMENT OF DELIBERATE DEFAULT AND NOT A MERE MISTAKE. THIS BEING THE POSITION, THE FINDING HAVING BEEN RECORDED ON FACTS THAT THE FURNISHING OF INACCURATE PARTICULARS WAS SIMPLY A MISTAKE AND NOT A DELIBERATE ATTEMPT TO EVADE TAX, THE VIEW TAKEN BY THE TRIBUNAL CANNOT BE HELD TO BE PERVERSE.' THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASE OF THE ASSESSEE IS ON EVEN BETTER FOOTING AS THE WRONG CLAIM WAS PREFERRED ON LEGAL PERCEPTION AND IN THE SITUATION OF A KNOWN SCRUTINY ASSESSMENT . 6.12 . THE LD.COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN CASE OF KANBAY SOFTWARE INDIA (P) LTD. (2009) 122 TTJ (PUNE) 721 WHEREIN THE ASSESSEE MADE A WRONG CLAIM OF DEDUCTION U/S 10A BY FILING REVISED RETURN OF INCOME. THE TRIBUNAL HELD THAT RAISING A LEGAL CLAIM, EVEN IF IT IS ULTIMATELY FOUND TO BE LEGALLY UNACCEPTABLE, CANNOT AMOUNT OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN SUPPORT OF HIS SUBMISSIONS HE HAS REPROD UCED RELEVANT OBSERVATIONS OF THE TRIBUNAL AND SUBMITTED THAT THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL: AS LONG AS THE INFORMATION GIVEN IN THE INCOME TAX RETURN IS CORRECT AND COMPLETE TO THE BEST OF ASSE SSEES KNOWLEDGE AND BELIEF, IT CANNOT BE SAID THAT THE STATUTORY OBLIGATION UNDER SECTION 139(1) IS CONTRAVENED WHICH, EVEN FOR A CIVIL LIABILITY FOR PENALTY BEING IMPOSED, IS A SINE QUA NON. AN ADDITION TO INCOME DOES NOT ALWAYS HAVE A CAUSE AND EFFECT R ELATIONSHIP WITH THE DISCHARGE OF ASSESSEES OBLIGATIONS UNDER SECTION 139(1), BECAUSE EVEN WHEN AN ASSESSEE DULY DISCHARGES HIS OBLIGATIONS UNDER SECTION 139(1), THERE CAN STILL BE ADDITIONS TO, OR DISALLOWANCE FROM, THE RETURNED INCOME DUE TO A VARIETY O F REASONS. WHEN AN ADDITION TO RETURNED INCOME PER SE CANNOT EVEN BE A LEGALLY ACCEPTABLE FOUNDATION OF INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) BECAUSE EVEN BEFORE INITIATING THE PENALTY PROCEEDINGS, THE ASSESSING OFFICER MUST RECORD SATI SFACTION THAT IT IS A FIT CASE FOR INITIATING THE PENALTY PROCEEDINGS, IT IS FUTILE TO SUGGEST THAT SUCH AN ADDITION SIMPLICITOR IS TO BE VISITED WITH IMPOSITION OF PENALTY. THE EXPRESSION FURNISHING OF INACCURATE PARTICULARS OF INCOME HAS ALSO NOT BEE N DEFINED IN THE ACT. THE EXPRESSION INACCURATE REFERS TO NOT IN CONFORMITY WITH THE FACT OR TRUTH AND THAT IS THE MEANING WHICH, IN OUR CONSIDERED VIEW, IS RELEVANT IN THE CONTEXT OF FURNISHING OF INACCURATE PARTICULARS. THE EXPRESSION PARTICULARS REFERS TO FACTS, DETAILS, SPECIFICS, OR INFORMATION ABOUT SOMEONE OR SOMETHING. THEREFORE, THE PLAIN MEANING OF THE EXPRESSION FURNISHING OF INACCURATE PARTICULARS OF INCOME IMPLIES FURNISHING OF DETAILS OR INFORMATION ABOUT INCOME WHICH ARE NOT IN CO NFORMITY WITH THE FACTS OR TRUTH. THE DETAILS OR INFORMATION ABOUT INCOME DEAL WITH THE FACTUAL DETAILS OF INCOME AND THIS CANNOT BE EXTENDED TO AREAS WHICH ARE SUBJECTIVE SUCH AS THE STATUS OF TAXABILITY OF AN INCOME, ADMISSIBILITY OF A DEDUCTION AND INTE RPRETATION OF LAW. THE FURNISHING OF INACCURATE INFORMATION THUS RELATES TO FURNISHING OF FACTUALLY CORRECT DETAILS AND INFORMATION ABOUT INCOME. IN THE PRESENT CASE, HOWEVER, WHAT HAS BEEN TREATED AS FURNISHING OF INACCURATE PARTICULARS IS MAKING OF A CLA IM WHICH WAS NOT ADMITTED BY THE ASSESSING OFFICER AN ACTION NOT CONTESTED BY THE ASSESSEE. THE ADMISSION OR REJECTION OF A CLAIM IS A SUBJECTIVE EXERCISE AND WHETHER A CLAIM IS ACCEPTED OR REJECTED HAS NOTHING TO DO WITH FURNISHING OF INACCURATE PARTICULA RS OF INCOME. THE AUTHORITIES BELOW HAVE APPARENTLY PROCEEDED TO TREAT ASSESSEES MAKING AN INCORRECT CLAIM OF INCOME AS FURNISHING OF INACCURATE PARTICULARS. WHAT IS A CORRECT CLAIM AND WHAT IS AN INCORRECT CLAIM IS A MATTER OF PERCEPTION. RAISING A LEGAL CLAIM, EVEN IF IT IS ULTIMATELY FOUND TO BE LEGALLY UNACCEPTABLE, CANNOT AMOUNT OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. INACCURATE, IS SOMETHING FACTUALLY INCORRECT AND INTERPRETATION OF LAW CAN NEVER BE A FACTUAL ASPECT. JUST BECAUSE AN A SSESSING OFFICER DOES NOT ACCEPT AN INTERPRETATION, SUCH AN INTERPRETATION IS NOT RENDERED INCORRECT. EVEN THE JUDGMENTS OF HONBLE SUPREME COURT ARE REVERSED BY THE LARGER BENCHES OF HONBLE SUPREME COURT. THE DEVELOPMENT OF LAW IS A DYNAMIC PROCESS WHICH IS AFFECTED BY THE INNUMERABLE FACTORS, AND IT IS ALWAYS AN ONGOING EXERCISE. IN SUCH CIRCUMSTANCES, A BONAFIDE LEGAL CLAIM BY THE ASSESSEE BEING VISITED WITH PENAL CONSEQUENCES ONLY BECAUSE IT HAS NOT BEEN ACCEPTED THUS FAR BY THE TAX AUTHORITIES OR JUDI CIAL AUTHORITIES IS AN ABSURDITY. IN ANY EVENT, AS WE HAVE NOTED ABOVE, THE CONNOTATIONS OF EXPRESSION PARTICULARS OF INCOME DO NOT EXTEND TO THE ISSUES OF INTERPRETATION OF LAW AND AS SUCH MAKING A CLAIM, WHICH IS FOUND TO BE UNACCEPTABLE IN LAW, C ANNOT BE TREATED AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN THIS VIEW OF THE MATTER, THE CASE OF THE ASSESSEE CAN NOT BE SAID TO BE A CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME, IN ITS NATURAL SENSE, EITHER. THERE IS, HOWEVER, ON E MORE EVENTUALITY IN WHICH PENALTY CAN BE IMPOSED AND THAT IS THE SITUATION IN WHICH DEEMING FICTION OF EXPLANATION 1 TO SECTION 271(1)(C) COMES INTO PLAY. EVEN A CASUAL LOOK AT THE PROVISION FOR DEEMING FICTION OF EXPLANATION 1 TO SECTION 271(1)(C) WOULD SHOW THAT IT RELATES ONLY TO THE FACTUAL ASPECTS. THE OPENING WORDS EMPLOYED IN THIS DEEMING FICTION ARE WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT . IN THE PRESENT CASE, THE ONLY CONTROVER SY IS REGARDING LEGALITY OF A CLAIM MADE BY THE ASSESSEE AND, THEREFORE, THIS DEEMING FICTION CANNOT BE INVOKED IN THE PRESENT CASE AT ALL. THE DEEMING FICTION OF EXPLANATION 1 TO SECTION 271(1)(C) CAN ONLY BE PRESSED INTO SERVICE IN CONNECTION WITH FACTS MATERIAL TO THE COMPUTATION OF INCOME AND NOT IN CONNECTION WITH THE COMPUTATION OF INCOME PER SE. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT ALL THE RELEVANT FACTS MATERIAL TO THE COMPUTATION OF TOTAL INCOME ARE DULY FURNISHED BY THE ASSESSEE AND NO DEFICIENCIES IN FURNISHING OF SUCH FACTS ARE POINTED OUT BY THE AUTHORITIES BELOW. THERE IS THUS NO CAUSE OF ACTION FOR DEEMING FICTION BEING TRIGGERED BY THE CONDUCT OF THE ASSESSEE. THE ASSESSEE'S CONTENTION IS THAT HE WAS OF THE BONA FIDE VIEW THAT THE CLAIM IS ADMISSIBLE AS THE DEDUCTION UNDER S. LOA IS AN UNDERTAKING SPECIFIC RELIEF AND A READING OF CB D T CIRCULAR AS ALSO THE FORMAT OF RULES PRESCRIBED IN THE IT RULES SUPPORT THIS I NTERPRETATION. ONE MAY OR MAY NOT AGREE WITH THIS UNDERSTANDING OF LAW OF THE ASSESSEE, BUT THE FACT THAT THERE CAN BE A BONA FIDE VIEW TO THAT EFFECT CANNOT BE RULED OUT. THE HUMAN PROBABILITIES FAVOUR ACCEPTANCE OF THIS EXPLANATION FOR BONA FIDES. THE FA CT THAT THE ASSESSEE HAS NOT CARRIED IN APPEAL THE REJECTION OF HIS CLAIM BY THE AD IS SOUGHT TO BE USED AGAINST THE ASSESSEE'S CLAIM OF BONA FIDES. THERE IS NO RATIONALE IN THIS. THE DECISION TO GO IN LITIGATION OR NOT DOES NOT DEPEND ON THE MERITS ALONE, AND MERELY BECAUSE AN ASSESSEE DOES NOT CHALLENGE A PARTICULAR ADDITION OR DISALLOWANCE IN APPEAL DOES NOT MEAN THAT THE CLAIM FOR SUCH EXCLUSION FROM INCOME OR DEDUCTION LACKED BONA FIDES. THE DECISION NOT TO GO INT O A LITIGATION OR NOT IS DEPENDENT ON A VARIETY OF FACTORS, AND THE MERITS OF THE LEGAL ISSUE INVOLVED IS ONLY ONE SUCH FACTOR. THEREFORE, THE DECISION TO THE ASSESSEE TO PURSUE OR NOT TO PURSUE LEGAL REMEDY AGAINST REJECTION OF HIS STAND IS NOT THE SAFE INDICATOR ABOUT BONA FIDES OF SUCH STAN D. THE AUTHORITIES BELOW CLEARLY ERRED IN HOLDING THAT MERELY BECAUSE 'THE ASSESSEE HAS ACCEPTED THE STAND OF THE AD, SO FAR AS REJECTION OF ASSESSEE'S CLAIM WAS CONCERNED, IT WOULD SHOW THAT ACTION OF THE ASSESSEE LACKED BONA FIDES. IN ANY EVENT, WHEN AN EXPLANATION IS OFFERED BY THE ASSESSEE IN DISCHARGE OF THE ONUS CAST UPON HIM BY EXPLN. 1 TO S. 271(L)(C), IT IS NOT FOR THE AD TO PONDER OVER WHAT SHOULD HAVE HAPPENED IN IDEAL CIRCUMSTANCES, AND REJECT THE EXPLANATION BECAUSE WHAT HAS ACTUALLY HAPPENED I S LESS THAN SUCH AN IMAGINARY IDEAL SITUATION; HE IS TO CONSIDER THE EXPLANATION OBJECTIVELY AND UNLESS HE FINDS THE SAME AGAINST THE HUMAN PROBABILITIES OR UNLESS THERE ARE ANY REAL INCONSISTENCIES OR FACTUAL ERRORS IN SUCH AN EXPLANATION, THE AO OUGHT TO ACCEPT THE SAME. IT CANNOT ALWAYS BE FEASIBLE TO PROVE THE CLAIM OF BONA FIDES TO THE HILT, NOR THE ASSESSEE CAN BE EXPECTED TO DO SO. WHETHER OR NOT A PERSON HAS ACTED BONA FIDE REFLECTS THE STATE OF HIS MIND IN RESPECT OF HIS CONDUCT, AND, THEREFORE, TH E ASSESSEE HAS HIS INHERENT LIMITATIONS IN ESTABLISHING THIS ASPECT OF THE MANNER. ALL THAT THE ASSESSEE CAN DO IS TO EXPLAIN THE CIRCUMSTANCES IN WHICH HE HAS ACTED IN A PARTICULAR MANNER AND SET OUT THE RELATED FACTS. THE EXPLANATION FOR BONA FIDES, AT T HE COST OF REPETITION, NEEDS TO BE CONSIDERED IN A FAIR AND OBJECTIVE MANNER AND IN THE LIGHT OF HUMAN PROBABILITIES. AS LONG AS THE EXPLANATION GIVEN BY THE ASSESSEE IS IN THE LIGHT OF THE HUMAN PROBABILITIES, THERE ARE NO FACTUAL ERRORS OR INCONSISTENCIE S, AND IT IS SUPPORTED BY REASONABLE SUPPORTING EVIDENCES REGARDING FACTUAL ELEMENTS EMBEDDED THEREIN, IF ANY, THE BONA FIDES SHOULD BE TAKEN AS PROVED. 6.13 . THE LD. COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN CASE OF CIT V/S RELIANCE PETRO PRODUCTS PVT. LTD. (2010) 322 ITR 158 (SC) AND SUBMITTED THAT MERE MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS. IF NO PARTICULARS FURNISHED IN THE RETURN OF INCOME I N RELATION TO A CLAIM ARE FOUND TO BE INCORRECT OR INACCURATE, THE MERE FACT THAT THE CLAIM IS NOT ACCEPTED BY ITSELF CAN NOT LEAD TO PENALTY. HE PLACED ON RECORD A C OPY OF THE JUDGMENT RENDERED IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. (SUPRA). HE SUBMITTED THAT IN THE CASE OF THE ASSESSEE, NO DETAILS FURNISHED IN THE RETURN OF INCOME IN RELATION TO CLAIM UNDER SECTION 80IB WERE FOUND TO BE INCORRECT AND HENCE NO PENALTY CAN BE CHARGED IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HONBLE APEX COURT. 6.14. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT F OLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. (SUPRA), THE HONBLE DELHI H IGH COURT DELETED THE PENALTY ON THE DENIAL OF CLAIM OF DEDUCTION U /S 80IA AND 80IB IN CASE OF CIT V/S DHARAMPAL PREMCHAND LTD. (2010) 329 ITR 572 (DEL). HE ALSO PLACED ON RECORD A COPY OF THE SAID JUDGMENT IN THE CASE OF DHARAMPAL PREMCHAND LTD. (SUPRA) . 6.15 . THE LD. COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON T HE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ZYCUS I NFOTECH (P) LTD. V/S ITO (2007) 17 SOT 310 (MUMBAI) AND SUBMITTED THAT DENIAL OF CLAIM OF EXEMPTION U/S 10A THAT IF THE ASSESSEE HAD DISCLOSED ALL THE MATERIAL FACTS, MERELY BECAUSE HIS CLAIM BASED ON HIS OWN UNDERSTANDING OF LAW WAS DENIED WILL NOT ATTRACT THE PENALTY. HE ALSO PLACED ON RECORD THE COPY OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL. 6.16. WHILE CONCLUDING THE SUBMISSIONS, THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE ASSESSEES CASE IS WELL COVERED BY THE ABOVE MENTIONED CASE LAW AND FACTS NARRATED THEREIN AND HENCE THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE LD. CIT(A) BE DELETED. 7. SHRI AVINASH KUMAR, LD. DR APPEARED ON BEHALF OF THE REVEN UE AND CONTENDED THAT THE ASSESSEE HAS NOT MERELY SUPPRESSED THE FACT THAT THE PRODUCTION ACTUALLY STARTED IN THE FINANCIAL YEAR 2002 - 03 BUT ALSO CLAIMED DEDUCTION U/S 80IB. THE ASSESSEE HAS WITHDRAWN THE CLAIM ONLY AFTER CALLING THE EXPLANATION AND DET AILS BY THE AO AND HENCE, THE WITHDRAWAL OF CLAIM OF DEDUCTION U/S 80IB AMOUNTING TO RS.21,64,646/ - WAS NEITHER VOLUNTARY NOR IN GOOD FAITH BUT WAS AS A RESULT OF INVESTIGATION MADE BY THE REVENUE. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HA S DONE CONCEALMENT BY METICULOUSLY PLANNING WHICH IS EVIDENT FROM THE FACT THAT DEDUCTION U/S 80IB IS CLAIMED FOR THE FIRST TIME AND THE AUDIT REPORT IN THE FORM OF 10CCB WAS NOT FILED WITH THE RETURN OF INCOME. FURTHER THE ASSESSEE CLAIMED DEDUCTION U/S 80IB ON FULL AMOUNT OF PROFIT OF THE BUSINESS DESPITE HAVING CLAIMED EXEMPTION U/S 10B OF THE ACT. TO SUM UP THE LD. DR PLEADED THAT THE AO RIGHTLY LEVIED PENALTY U/S 271(1)( C) AND IF THE MATTER WOULD NOT HAVE SCRUTINIZED, THE CLAIM WOULD HAVE REMAINED UNNOTICED, THEREFORE, THE LD. CIT(A) IS LEGALLY AND FACTUALLY CORRECT IN CONFIRMING THE PENALTY OF RS. 7 , 28,621 / - LEVIED BY THE AO. WITH REGARD TO THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE, HE SUBMITTED THAT THESE ARE DISTINGU ISHABLE ON FACTS AND NOT APPLICABLE TO THE CASE IN HAND. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FOR CLAIMING DEDUCTION U/S 80IB, IT IS MANDATORY TO FILE AUDIT REPORT IN FORM NO.10CCB. IN THIS CASE, THE RETURN OF INCOME WAS FILED ON 31.12.2006. 8 . IN THE RESULT, FOR STATISTICAL PURPOSES, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED . THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. XXXX SD/ - ( . . K / D. K. SRIVASTAVA) ( . . R / T. K. SHARMA) XXXX / ACCOUNTANT MEMBER 9 K / JUDICIAL MEMBER / ORDER DATE - 07 - 2012. /RAJKOT SRL RJ6 86 / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - SHRI KISHOR BABULAL MANDALIA, 2 . N / RESPONDENT - THE INCOME TAX OFFICER , WARD 5(1) , RAJKOT 3 . N 0 / CONCERNED CIT , JAMNAGAR. 4 . 0 - / CIT (A) , JAMNAGAR. 5 . N99N , N , / DR, ITAT, RAJKOT 6 . R / GUARD FILE. / BY ORDER , SENIOR PRIVATE SECRETARY N , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.