Don’t push the envelope too far when it comes to making Tax holiday claims, or you could get penalized – that was the message for the Taxpayer in the case of Cybertech Systems & Software decided by the Mumbai Tribunal. The Tribunal upheld levy of penalty for claiming Tax holiday benefits under section 10B [meant for export activity] for interest income from Fixed Deposits and Inter-corporate Deposits.

The Taxpayer had sought to resist the Penalty by contending that there were conflicting judicial decisions on the issue of admissibility of Tax holiday benefit for interest income (at the relevant time the claim was made) and the position of law became clear only after only after the ruling of the Supreme Court in Liberty shoes’ case. The Taxpayer cited a couple of rulings by the jurisdictional High Court [CIT Vs Paramount Premises and CIT Vs Nagpur Engineering] as the basis for its  Tax holiday claim. In the circumstances, it was contended that penalty under section 271(1)(c) [for concealment/furnishing inaccurate particulars] could not be levied to Taxpayer’s case.

The Tribunal rejected the Taxpayers stand and held that, in the rulings cited by the Taxpayer, there was a nexus between earning of the interest income and the business . No such nexus was shown to exist  in the Taxpayers case under appeal. The Tribunal ruled that the Taxpayer had failed to put forward a plausible explanation in support of its position, and upheld the levy of Penalty.

Our Comment

Given that the judicial forums generally tend to be more indulgent to the Taxpayer when it comes to penalty levy, it is possible that ruling may be overturned at higher levels. Nevertheless, the ruling does ring a warning bell to Taxpayers, forcing them to think twice before making a ‘try-your-luck’ claim in their return; and at any rate, to have a proper explanation in place to back-up their claims.