Penalty u/s 271(1)( c) justified in case of deliberate false claim of exemption in ROI

Brief of the case

Assesse’s claim for exemption u/s 10B was denied. A.O. also passed a penalty order u/s 271(1)(c) for raising a false claim for exemption. Tribunal found that assesse had not even challenged rejection of claim in appeal. Moreover, judgments relied upon by assesse for raising such a claim were found distinguished on facts. Tribunal, thus concluded that assesse deliberately furnished false particulars of income. Accordingly, impugned penalty order was confirmed.

Facts of the case

• The assessee claimed benefit u/s.10B on the interest income earned on deposits placed with the bank/s for fixed term/s (FDRs) and inter-corporate deposits (ICDs).
• It was found that the interest income has no nexus with the assessee’s business activity. Therefore on raising false claim by assesse, AO passed penalty order u/s 271 (1) (c).
• Before Tribunal, the assesse relied on various judgments to its case. The Tribunal found that assesse had not even challenged rejection of claim in appeal. Moreover, judgments relied upon by assesse for raising such a claim were found distinguished on facts.

Contention of Revenue

There is nothing on record to suggest otherwise, i.e., of the interest bearing deposits as occasioned by the assessee’s business requirements, of a clear nexus with business, much less an intimate relationship, denoting one of first degree, as contemplated by law, which thus is with the said deposits.

HELD by ITAT

• Thus, it was viewed that there was no merit in the assessee’s case. Since assesse, had not adduced any explanation, much less substantiated it, except for a bald assertion (i.e., of the said interest income as being a part of the assessee’s business income).In fact, well settled, is only a false plea or a ruse. Reliance on the decision by the tribunal for a subsequent year (AY 2000-01) is, under the circumstances, again, completely misplaced.

• That is to say, that the interest income does not form part of the assessee’s business , the same could not in any case be said to be derived there-from, a condition precedent for the income of the assessee’s export business from being eligible for deduction u/s. 10B, for which reference may be made to the provision of section 10B(1), reproduced hereinabove. Though, therefore, surely, the A.O. has not segregated the interest income, stating the same to have been found to be business income would be clearly incorrect in view of his clear finding of it being not connected with the assessee’s business activity but only by way of interest on surplus funds, i.e., for the time being. There is nothing on record to suggest otherwise, i.e., of the interest bearing deposits as occassioned by the assessee’s business requirements, of a clear nexus with business, much less an intimate relationship, denoting one of first degree, as contemplated by law, which thus is with the said deposits.

• The penalty stands upheld on this expenditure as the claim for deduction u/s.10-B was found as not bona fide.