2016 (8) TMI 1227 - AT - Income Tax

Penalty u/s 271(1)(c) - addition made on account of interest income earned on deposits made from funds available during preoperative period of the assessee - Held that - Undisputedly the funds in the present case were given for setting up projects and on account of delay in starting the projects the funds were invested in short term deposits. The assessee was of the belief that the funds were inextricably linked to the setting up of business of the assessee and therefore the interest earned thereon was a capital receipt. The claim of the assessee was denied for the reason that since no business had commenced the income could not be said to be linked to the business of the assessee and further that there was no restriction on the usage of interest earned for the purpose of setting up of projects only therefore the interest earned could not be said to be capital in nature. We find that the Delhi High Court in the case of Indian Oil Panipat (2009 (2) TMI 32 - DELHI HIGH COURT ), while holding preoperative period interest earned to be capital in nature had distinguished the apex court decision in Tuticorin Alkali (1997 (7) TMI 4 - SUPREME Court) stating that that the nature of the funds whether surplus or specific purpose was the determinative factor of the nature of interest earned thereon and went on to distinguish the apex court decision by stating that the funds in that case were surplus funds and therefore interest earned thereon was held to be revenue in nature. The issue therefore is a debatable issue and in such circumstances the claim of the assessee cannot be said to be wholly untenable. The assessee cannot therefore be held guilty of furnishing inaccurate particulars of income even as per the decision of the Delhi High Court in the case of Zoom Communication Private Limited (2010 (5) TMI 34 - DELHI HIGH COURT) as argued by the Ld.DR since in that case the assessee was held liable to penalty as its claim was found to be wholly untenable in law. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on interest income earned during pre-operative stage of a Government Company.

Detailed Analysis:

Issue 1: Levy of Penalty under Section 271(1)(c)
The appeal challenged the penalty upheld by the Commissioner of Income Tax (Appeals) under section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed due to the addition made by the Assessing Officer on interest income earned during the pre-operative stage of the Government Company. The company received funds for hydroelectric power projects, parked them in short-term deposits, and set off the interest against capital expenses. The Revenue contended that the interest should have been included as income. The Commissioner of Income Tax (Appeals) upheld the penalty, alleging inaccurate particulars furnished by the company.

Issue 2: Contentions of the Assessee
The company argued that all details regarding interest income were disclosed and not found to be inaccurate. It maintained that it did not furnish inaccurate particulars but made a claim considered incorrect by the Revenue. The company cited the decision in CIT Vs. Reliance Petroproducts (P) Ltd. to support its position. Additionally, the company referred to the Delhi High Court ruling in Indian Oil Panipat Consortium Ltd. Vs. ITO to argue that the interest earned was capital in nature due to the specific purpose of the funds received for project setup.

Issue 3: Judicial Interpretation
The Tribunal analyzed the legal position and held that the company did not furnish inaccurate particulars of income. It emphasized that an incorrect claim does not equate to inaccurate particulars, citing the decision in CIT Vs. Reliance Petroproducts (P) Ltd. The Tribunal also noted the debatable nature of the issue, referencing the Delhi High Court's decision in Indian Oil Panipat Consortium Ltd. Vs. ITO. The Tribunal concluded that the company's claim was not wholly untenable in law, thereby rejecting the penalty under section 271(1)(c) of the Act.

Conclusion:
The Tribunal allowed the appeal, setting aside the Commissioner of Income Tax (Appeals) order on the penalty. It determined that the company did not furnish inaccurate particulars of income and that the penalty was not justified under section 271(1)(c) of the Income Tax Act, 1961.