Sarabjit Singh Kalra, New Delhi vs Assessee

Sarabjit Singh Kalra, Vs. JCIT, GB-8, Shivaji Enclave, Circle-26(1), New Delhi. New Delhi. PAN : AFHPK8643K

(Appellant) (Respondent)

Appellant by : None Respondent by: Shri Neehar Ranjan Pandey, Addl.CIT

Date of Hearing : 18.06.2015 Date of Pronouncement : 19.06.2015

ORDER

This appeal by the assessee is directed against the order passed by

the CIT(A) on 21.11.2013 affirming the penalty of Rs.70,800/- imposed

by the Assessing Officer (AO) u/s 271(1)(c) of the Income-tax Act,

1961 (hereinafter also called 'the Act') in relation to the Assessment

Year 2008-09.

2. Briefly stated, the facts of the case are that the assessee, inter alia,

carried on the business of manufacture of electrical goods such as ACs, ITA No.663/Del/2014 2

CTV, washing machine, etc., in the concern called Noble Industries.

Income from this concern was eligible for deduction u/s 80IC. During

the course of assessment proceedings, it was noticed by the AO that the

assessee had also declared job work income of Rs.2,08,256/- in this

concern. In the opinion of the AO, such job work income was not

eligible for deduction u/s 80IC. That is how, the AO rejected the claim

of deduction u/s 80IC on job charges amounting to Rs.2,08,256/-.

However the deduction on the income from manufacturing operations

was duly allowed. The assessee did not agitate the denial of deduction

before the appellate authorities. The AO initiated penalty proceedings

with reference to such denial of deduction u/s 80IC on a sum of

Rs.2,08,256/-. The assessee contended before the AO that the penalty

was not exigible. It was submitted that notwithstanding the assessee

not challenging the denial of deduction u/s 80IC on job work, he was

entitled to deduction on job work charges as per law. Not convinced,

the AO imposed penalty amounting to Rs.70,800/ on the amount of

reduction of the amount of deduction to this extent. The assessee's

submissions which was reiteration of those advanced before the AO, ITA No.663/Del/2014 3

failed to convince the ld. CIT(A) for deleting the penalty. That is how

the penalty came to be upheld.

3. I have heard the ld. DR and perused the relevant material

available on record. There is no appearance from the side of the

assessee despite notice. As such, I am proceeding to dispose of this

appeal ex parte qua the assessee. It is observed that the assessee was

otherwise eligible for deduction u/s 80IC in respect of his income

earned from manufacturing operations in the concern, Noble Industries.

The AO has also duly granted deduction on such income from

manufacturing. The only dispute is about job work charges earned by

the assessee to the tune of Rs.2,08,256/- on which the assessee claimed

deduction that was disallowed by the AO on the ground that job work

does not amount to manufacture or production. In my considered

opinion, there cannot be any bar on the admissibility of deduction u/s

80IC on job work charges earned from the manufacturing unit. What is

eligible for deduction is the amount of income earned from the eligible

unit. Such income may be earned either by doing manufacturing for

self or by rendering job service to outsiders. In fact, there is no ITA No.663/Del/2014 4

qualitative difference between the income earned from manufacturing

for self and job work done for others.

4. The mere fact that the assessee did not challenge the disallowance

for deduction u/s 80IC on job work charges, cannot be a criteria for

automatic imposition of penalty u/s 271(1)(c) of the Act. It goes

without saying that penalty proceedings are distinct from assessment

proceedings. In the latter proceedings, the assessee is fully entitled to

make out a case for non-imposition of penalty in respect of additions

made in the assessment. Here is a case in which the assessee, even

though entitled to deduction u/s 80IC on job work charges, failed to

oppose such denial before the appellate authorities. In no case, such a

denial of deduction can call for imposition or confirmation of penalty

u/s 271(1)(c) of the Act. I, therefore, overturn the impugned order and

direct the deletion of penalty.

5. In the result, the appeal is allowed.

The decision was pronounced in the open court on 19th June,

2015. Sd/-

(R.S. SYAL) ACCOUNTANT MEMBER Dated: 19th June, 2015.

ITA No.663/Del/2014 5

dk

Copy forwarded to

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR Dy. Registrar, ITAT, New Delhi