271(1)(c) - Difference of opinion on claim by assessee

M/s Penta Software Pvt. Ltd vs ITO

Dated: 29^th April 2011

If the assessee does not make a claim in the return of income, it can never be allowed, the only way for the assessee was to make a claim in return of income which is subject to examination by AO under I.T. Act and therefore difference of opinion on a claim bona fidely made by itself does not warrant penalty  u/s 271(1)(c) if the facts relating to the same are disclosed.

AO while finalizing the assessment u/s 143(3) did not allow the set off of unabsorbed depreciation as claimed by the assessee in view of the explanation of sub-clause (iv) of clause 6 of Sec. 10B after rejecting the assessee’s explanation that it is not applicable to the assessee’s case and assessed the company at an income of Rs. 94,495/-. He also initiated penalty proceedings u/s 271(1)(c) of the I.T. Act.

Assessee which was supported by Hon’ble Delhi High Court in the case of Escorts Electronics Ltd. (supra). Though there were contrary views by Hon’ble Karnataka High Court in the case of CIT Vs. Himmatasingike Seide Ltd. (2006) 286 ITR 255 (Kar.), Delhi High Court being jurisdictional High Court, assessee made a claim in accordance with the ratio of decision of Jurisdictional High Court. The issue has been later settled by the Hon’ble Supreme Court in the case of Liberty India - 317 ITR 218.

Assessee claim, which may be subject matter of legal opinion, can be made by it more particularly when assessee’s view is supported by the decision of Jurisdictional High Court. AO may have a different view consequent to subsequent Supreme Court judgment, but it cannot be held that at the time of filing of return assessee wanted to avoid or evade the tax. Making a legal claim, based on one of the possible views, which is accepted by Jurisdictional High Court, cannot be held to be ex facie inadmissible claim.

The merits of the case, the assessee’s claim seems to be based on bona fide basis. Hon’ble Delhi High Court in the case of Escorts Electronics Ltd. (supra), has held that unabsorbed depreciation carried forward from earlier year can be set off against income under the head “Income from other sources”. This being so, even if assessee’s interest income was assessable under the head “income from other sources”, it could be set off with unabsorbed depreciation. Thus, the plea that assessee’s claim is supported by a Delhi High Court judgment, cannot be ruled out. If the assessee does not make a claim in the return of income, it can never be allowed to it as held by Hon’ble Supreme Court in the case of Goetze (India) Ltd. 284 ITR 323. In view thereof, the only way for the assessee was to make a claim in return of income which is subject to examination by AO under I.T. Act.

In the case of Zoom Communication (P) Ltd. (supra); and Escorts Finance Ltd. (supra) has held that if the assessee makes ex facie (on face of it) inadmissible claim, the same is liable for penalty. In the instant case, there is a Delhi High Court judgment which in one way or the other supports assessee’s claim. Under these circumstances, we are unable to hold that the assessee’s claim was ex facie inadmissible. Hence, ratio of decisions in the cases of Zoom Communication (P) Ltd. (supra); and Escorts Finance Ltd. (supra) are not applicable to assessee’s case. The assessee’s claim having an element of debate and having element of support of Hon’ble Delhi High Court Judgment, cannot be held liable for concealment penalty.