2014 (9) TMI 1108 - AT - Income Tax

Penalty u/s 271(1)(c) - treatment of interest income on deposits made during the construction period - Held that - The assessee followed the decision of Indian Oil Panipat Power Consortium Limited vs. ITO (2009 (2) TMI 32 - DELHI HIGH COURT) wherein, it was held that where funds are infused specifically for purposes of construction or setting up of the plant, interest earned on temporary deposit of funds not immediately required for such purposes would be regarded as inextricably linked to setting up of plant and would, therefore, go to reduce the project cost. It was on the basis of the said decision that the assessee revised its return and claimed that interest income, which had been set off against the project cost in its books of account, was not chargeable to tax as income from other sources . The factum of the deposits having been made shortterm nowhere stands challenged. Thus, on this score also, the assessee has a prima facie good case. Turning to the issue of taxability of interest accrued from deposits of ₹ 7.50 crores made with the District Court, Bathinda arguments of the Ld. that since the deposit was made under the direction of the Hon ble Supreme Court, it needs to be treated as capital receipt, to be set off against the cost of the project and accordingly after considering the arguments of the parties, we find there is prima facie case in favour of the assessee As regards the legal claim with reference to disclosure with regard thereto had been made, it was argued that since the matter was litigated there were two possible views and in such cases concealment of penalty is not leviable. Further, the AO nowhere specified the concealment of particulars of income alleged to have been concealed by the assessee. On this score too, the assessee has a prima facie case and the balance of convenience is in favour of the assessee. The purpose of taking into consideration the period of limitation for filing the appeal before the Tribunal is, as to whether the assessee is pressing/going to press for stay. Obviously, when such a remedy has been prescribed by the statute, it cannot be taken away at the will of the department. It is only because it is reasonably expected that the stay applications would be filed alongwith application by the end of the limitation period, that such period is to be taken into consideration. So far as the present cases are concerned, the appeals italicize been filed within limitation. - Decided in favour of assessee.

Issues Involved:
1. Recording of satisfaction
2. Treatment of interest income on deposits made during the construction period
3. Taxability of interest income accrued on deposits made with the District Court, Bathinda under the direction of the Supreme Court
4. Claim of carry forward of business loss
5. Bona fide/Inadvertent mistake

Detailed Analysis:

1. Recording of Satisfaction:
The assessee argued that the Assessing Officer (AO) did not properly record satisfaction regarding the filing of inaccurate particulars of income in the assessment order. The AO initiated penalty proceedings under section 271(1)(c) of the Income Tax Act for alleged concealment of particulars of income but levied the penalty for alleged "concealment/furnishing of inaccurate particulars of income." This discrepancy was highlighted, arguing that the penalty cannot be levied for alleged filing of inaccurate particulars of income without specific findings.

2. Treatment of Interest Income on Deposits Made During the Construction Period:
The assessee earned interest income from funds temporarily deposited in fixed deposits during the construction period. Initially, this interest was treated as income chargeable under the head 'Income from other sources'. However, relying on the decision in "Indian Oil Panipat Power Consortium Limited vs. ITO," the assessee revised its return, claiming that the interest income should reduce the project cost as it was inextricably linked to the setting up of the plant. The AO, however, taxed the interest income as "income from other sources," a decision upheld by the CIT(A) and ITAT. The appeal against this decision is pending before the High Court.

3. Taxability of Interest Income Accrued on Deposits with the District Court, Bathinda:
Interest accrued on deposits made with the District Court, Bathinda, under the direction of the Supreme Court was argued to be set off against the cost of the refinery project. The AO and the Tribunal held that the interest income should be taxed as "income from other sources." However, the assessee contended that since the deposit was made under the Supreme Court's direction, the interest should not be taxable as the right over the income was inchoate. The assessee cited several case laws to support the argument that income would not accrue until the dispute is settled.

4. Claim of Carry Forward of Business Loss:
The assessee incurred revenue expenditure during the year but, due to an inadvertent mistake, showed project-related expenditure as business loss. This expenditure was not claimed as set off against income from other sources but was carried forward as business loss. The AO accepted the mistake during assessment, but a penalty was levied for alleged concealment of particulars of income. The assessee argued that no penalty is leviable for such inadvertent mistakes, citing several case laws to support this position.

5. Bona fide/Inadvertent Mistake:
The assessee argued that the claims made were bona fide and based on legal interpretations where two views were possible. The AO failed to specify the particulars of income alleged to have been concealed. The assessee cited various case laws to argue that concealment penalties are not leviable in cases of bona fide legal claims and inadvertent mistakes.

Conclusion:
The Tribunal found that the assessee had a prima facie good case on merits. The balance of convenience was in favor of the assessee, and irreparable loss would occur if the stay was not granted. The AO's attachment of the bank accounts and recovery was deemed unsustainable, and the AO was directed to refund the amount immediately. The stay applications were allowed, and the main appeals were scheduled for hearing on merit.

← Previous Next →