Mere Disallowance of Claim u/s 80-IA of the Income Tax Act would not attract Penalty: ITAT Hyderabad [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal, Hyderabad bench has ruled that mere disallowance of a claim under section 80-IA of the Income Tax Act is not sufficient to initiate penalty proceedings against the assessee under section 271(1)(a) of the Income Tax Act, 1961. The Tribunal found that such a disallowance cannot lead to a conclusion that the assessee has concealed income or has failed to furnish accurate particulars’.

Coming to the facts of the case, the assessee-company is engaged in the business of manufacture and sale of ‘condition monitoring equipment’.The assessing officer, while rejecting the return filed by the assessee during the relevant assessment year, has disallowed certain claims of the assessee under section 80-IA and made certain additions. Parallelly, the Department initiated penalty proceedings under section 271(1)(c) of the Act. Though the disallowance of the claim was successfully appealed by the assessee before the first appellate authority, the same was disallowed by the Appellate Tribunal on Revenue’s appeal.Thereafter, the penalty proceedings initiated against the assessee was completed and the same was confirmed by the CIT(A).

Aggrieved with the order, the assessee preferred a second appeal before the Tribunal contending that mere disallowance of claim under section 80-IA cannot be a valid ground for initating penalty proceedings under section 271(1)(c).

While deleting the order of penalty, the Tribunal observed that “It is to be noted that claim u/s 80-IA was allowed by the Ld.CIT(A) after due examination by him. On further appeal by Revenue, ITAT however, has not allowed the claim. This shows that it is mere rejection of a claim. Mere disallowance of a claim does not come within thepurview of ‘concealment of income’. It can also do not form under the category of ‘furnishing of inaccurate particulars’.”

The Tribunal noticed the Apex Court decision in CIT Vs. Reliance Petro Products, in which it was held that, in the absence of  a finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false, penalty under section 271(1)(c) will not be sustained.

In view of the above findings. The Tribunal allowed the assessee’s appeal by holding that there is no scope for levy of any penalty u/s. 271(1)(c) since there was no ‘concealment of income’ or ‘furnishing of inaccurate particulars’.

Read the full text of the order below.