By TIOL News Service

NEW DELHI, APRIL 17, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether mere repudiation of a claim made in good faith, is sufficient ground for attribution of penal liabilities on taxpayers. NO IS THE ANSWER.

Facts of the case:

The Assessee, a wholly owned subsidiary of American Express International Inc., USA, had been deriving its income from the business of manufacturing and export of articles of Data Management, Information Analysis and rendering call centre services to its American Express affiliates. During the F.Y 2004-05, the assessee carried on its business through the undertakings, viz., FC-East unit and FCE-GGN units which are entitled to claim deduction u/s 10B, and accordingly filed their return declaring a loss of Rs.32,09,220/-. After scrutiny, the AO made various additions on account of TP additions, interest earned on short term deposits and interest earned on income tax refund, and simultaneously initiated proceedings u/s 271(1)(c).

When the matter reached the level of the Tribunal, all items pertaining to TP addition and interest on deposits are deleted. Pursuant to the same, the AO passed order u/s 250/254/143(3) of the Act giving effect to the order of the ITAT and deleting all additions, leaving behind the only addition to the sustained in respect of the fourth addition of Rs.10,27,284/-. When the CIT(A) considered the penalty order, it was in his knowledge that the Tribunal in the quantum proceedings decided three additions in favour of assessee. By way of impugned order, the CIT(A) noticed that there had been adequate disclosure regarding the claim of deduction u/s 10B. He further observed that inasmuch as the only issue to be considered was whether interest income forms part of profits of business or netting of interest income with interest income was allowed, the CIT(A) answered that when two views are possible, different of opinion between the AO and the assesse could not expose the assessee to penalty.

Tribunal held that,

++ there is no dispute that out of the four additions made by AO, three additions were directed to be deleted by the Tribunal in ITA No.2712/Del/2014 = 2016-TII-296-ITAT-DEL-TP. Pursuant thereto, the AO passed the order giving effect to the orders of ITAT. There is also no dispute from the Revenue that in respect of A.Y 2002-03 and 2003-04, a similar question had arisen in assessee’s case and such a question was decided in favour of assessee. Nothing is brought to notice disturbing this consistent opinion in the case of the assessee on this issue;

++ further, notes attached to the computation of total income shows that a claim for deduction of interest of Rs.10,27,284/- u/s 10B was disclosed on the income-tax refund and interest on FD of Rs.2,07,57,519/-. In view of this disclosure by the assessee in the computation of income filed along with the return of income, no factual error is found to have been committed by the CIT(A). At the same time, there is no legal error also committed by him inasmuch as no penalty could be sustained merely because a deduction claimed was disallowed.

(See 2018-TIOL-561-ITAT-DEL)