While dismissing the appeal filed by the revenue the Chandigarh bench of Income Tax Appellate Tribunal (ITAT) held that if disallowance of claim was debatable and bonafied then no penalty under Section 271(1) (c) of the Income Tax Act, 1961 can be levied.
In the present case the assessee claimed 100 percent of deduction on eligible profit under Section 81 IC of the Income Tax Act.
But the Assessing Officer (AO) has restricted assessees claim of deduction under the said section of the act to 25 percent of the eligible profit as against 100 percent claimed by the assessee on account of substantial expansion undertaken by it, because it was the 8th year since commencement of production and as per the said section 100 percent of deduction on eligible profit is only allowable for the first five years from the date of commencement of production and thereafter at 25 percent of the profits for the next five years. Accordingly on restrictions of the said section the AO initiated penalty proceedings and levied penalty under section amounting to Rs. 19, 87,760.
On appeal the CIT (A) deleted the penalty under section 271(1) (c) of the Income Tax Act relying upon the order of the Coordinate Bench of the Tribunal in similar issues. Thereafter the revenue filed an appeal before the bench.
The bench comprising of Judicial Member Diva Singh and Accountant Member Annapurna Gupta was of the opinion that the assessees claim was based on interpretation of the section so as to allow 100 percent deduction of profits on substantial expansion undertaken, also found the claim of the assessee to be bonafide and not false or wrong. “Thus the claim for deduction considered as debatabale and bonafied. Hence It could not be treated as concealment or furnishing of inaccurate particulars of income,” the bench said.
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