2014 (3) TMI 1037 - AT - Income Tax

Penalty levied under section 271(1)(c) - claimed deduction on prior period expenses - Held that - The Tribunal in the quantum appeal relating to assessment year 2004-05 has remitted the issue of prior period expenses back to the file of the Assessing Officer. In view thereof, we delete the levy of penalty under section 271(1)(c) of the Act on the said. Disallowance of allowance of set off of brought forward losses/depreciation in the hands of the assessee - Held that - We find no merit in the stand of authorities below in holding that the assessee by furnishing the said details had furnished inaccurate particulars of income specially in view of the note appended to the computation of income under which it has been declared that the said figures of brought forward losses had been worked out after accounting for the claim of sales tax subsidy for the earlier year on the basis of the orders of the Tribunal. No doubt the assessee had revised its claim of brought forward losses in assessment year 2003-04 in the revised return filed for the said year, but that in itself would not tantamount to furnishing of inaccurate particulars of income by the assessee. Accordingly, we direct the Assessing Officer to delete penalty levied under section 271 (1) (c) of the Act on the said non allowance of set off of brought forward losses/depreciation in the hands of the assessee Assessability of sales tax subsidy - Held that - No merit in holding the assessee to have furnished inaccurate particulars of income in respect of such debatable issue. The assessee is not exigible to levy of penalty under section 271(1)(c) of the Act on the aforesaid treatment of sales tax subsidy as revenue in the hands of the assessee and we uphold the order of the CIT (Appeals) in directing the Assessing Officer to delete the same Disallowance made under section 36 (1) (iii) of the Act on account of disallowance of interest paid on secured loans being relatable to interest free advances made by the assessee - Held that - Following the parity of reasoning in respect of the treatment to sales tax subsidy and the question of law pending adjudication before the Hon ble Supreme Court of India, we confirm the order of the CIT (Appeals) in holding that in view of the debatable issue raised the assessee cannot be held to have furnished inaccurate particulars of income and hence not exigible to levy of penalty under section 271(1)(c) of the Act. Disallowance in respect of excess depreciation claimed by the assessee on generator - Held that - Where there is variance in the rates of depreciation to be allowed on the asset, the issue at best is debatable and such disallowance does not warrant levy of penalty under section 271 (1) (c) of the Act. However, the claim of the additional depreciation on the said asset by the assessee was both incorrect and misconceived, as there is no provisions of allowance of additional depreciation on such asset during the period under consideration. The assessee has made a false claim of additional depreciation and the assessee is exigible to levy of penalty under section 271 (1) (c) of the Act on such wrong claim of depreciation. Addition on account of recomputation of deduction under section 80IA - Held that - In the quantum appeal filed by the assessee, the Tribunal (supra) vide para 9 at pages 4 and 5 of the order held that the misc. income claimed by the assessee was not derived from any industrial undertaking. The assessee was held not entitled to claim deduction under section 80IA of the Act in respect of such misc. income following the ratio laid down by the Hon ble Supreme Court in Liberty India Vs. CIT 2009 (8) TMI 63 - SUPREME COURT . The assessee having claimed deduction under section 80IA of the Act on the aforesaid misc. income by including the same in the eligible profits of business and its denial being debatable does not tantamount to furnishing of inaccurate particulars of income by the assessee and making it exigible to levy of penalty under section 271(1)(c) of the Act. Interest income included in the profits of business while computing the deduction under section 80IA - Held that - In the facts of the present case as pointed out in paras hereinabove, the claim of the assessee cannot be said to be bonafide once the issue had been settled by the Hon ble Supreme Court in Pandian Chemicals Ltd. (2003 (4) TMI 3 - SUPREME Court ). Thus the assessee is liable to levy of penalty under section 271(1)(c) of the Act on such reworking of deduction under section 80IA of the Act on interest income. Accordingly, we uphold the order of the CIT (Appeals) in this regard. Income included by the assessee as being derived from the industrial undertaking was the insurance claim - eligible for the deduction under section 80IA - Held that - treatment of the receipts from insurance claim being includible or not being includible in the profits of business, while computing deduction under section 80IA of the Act i.e. whether the same is derived or not derived from the industrial undertaking, makes the issue debatable issue and additions on such debatable issue can not tantamount to furnishing of inaccurate particulars of income as held by us in paras hereinabove. The claim of the assessee at best could be said to be debatable claim which does not make the assessee exigible to levy of penalty under section 271 (1) (c) of the Act. Deduction allowable under section 80HHC - Held that - Where the assessee has furnished complete particulars in respect of its items of income as detailed above merely because the said items of income were held to be not eligible for deduction under section 80HHC of the Act and the said deduction was recomputed by excluding 90% of the said income from the eligible profits, the said recomputation would not tantamount to furnishing of inaccurate particulars of income making the assessee exigible levy of penalty under section 271 (1) (c) of the Act. Accordingly, we direct the Assessing Officer to delete penalty levied under section 271 (1) (c) of the Act on the recomputed deduction under section 80HHC of the Act. Thus penalty under section 271(1)(c)is upheld on Additional depreciation on asset and Deduction under section 80IA of the Act on interest income

Summary

Issues Involved:
1. Disallowance of set off of brought forward losses and depreciation.
2. Disallowance of prior period expenses.
3. Treatment of sales tax subsidy as revenue receipt.
4. Disallowance of interest on interest-free advances.
5. Disallowance of excess depreciation on generator.
6. Disallowance of deduction under section 80IA.
7. Disallowance of deduction under section 80HHC.

Detailed Analysis:

1. Disallowance of Set Off of Brought Forward Losses and Depreciation:
The assessee claimed set off of brought forward losses and depreciation amounting to Rs. 22,45,85,291/-, which was disallowed by the Assessing Officer (AO) due to discrepancies in the figures declared in the revised return for the previous year. The Tribunal noted that the assessee had provided a note in the computation of income explaining the basis of the claim, which was not found to be inaccurate. The Tribunal concluded that the assessee had not furnished inaccurate particulars of income and directed deletion of the penalty related to this disallowance.

2. Disallowance of Prior Period Expenses:
The AO disallowed prior period expenses amounting to Rs. 45,44,691/- due to the assessee's failure to provide details. The Tribunal remitted the issue back to the AO for reconsideration. Consequently, the penalty related to this disallowance was deleted, with the AO given the option to initiate penalty proceedings after adjudicating the quantum addition.

3. Treatment of Sales Tax Subsidy as Revenue Receipt:
The AO treated sales tax subsidy of Rs. 6,80,61,977/- as revenue receipt, following the jurisdictional High Court's decision. The Tribunal noted that the issue was debatable and pending before the Supreme Court. It held that the assessee could not be said to have furnished inaccurate particulars of income on such a debatable issue and upheld the deletion of the penalty.

4. Disallowance of Interest on Interest-Free Advances:
The AO disallowed interest amounting to Rs. 54,40,720/- related to interest-free advances to sister concerns. The Tribunal upheld the CIT(A)'s decision to delete the penalty, noting that the issue was debatable and pending before the Supreme Court.

5. Disallowance of Excess Depreciation on Generator:
The AO disallowed excess depreciation claimed on a generator. The Tribunal found that the issue of the rate of depreciation was debatable. However, it upheld the penalty related to the claim of additional depreciation, which was found to be incorrect and misconceived.

6. Disallowance of Deduction Under Section 80IA:
The AO disallowed deduction under section 80IA on interest income, insurance claim, and miscellaneous income. The Tribunal upheld the penalty on the interest income of Rs. 67,03,027/-, as the issue had been settled by the Supreme Court before the return was filed. However, it found the disallowance of insurance claims to be a debatable issue and directed the deletion of the penalty related to this disallowance.

7. Disallowance of Deduction Under Section 80HHC:
The AO recomputed the deduction under section 80HHC by excluding 90% of certain incomes, including scrap sales, sales tax subsidy, insurance claims, miscellaneous income, and DEPB receipts. The Tribunal found that the recomputation of deduction under section 80HHC was a debatable issue and directed the deletion of the penalty related to this disallowance.

Conclusion:
The Tribunal concluded that penalties under section 271(1)(c) were not justified on debatable issues or where the assessee had provided a bonafide explanation. Penalties were upheld only on the incorrect claim of additional depreciation and the disallowed deduction under section 80IA on interest income. The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed.