2015 (5) TMI 1147 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of interest u/s 36(1)(iii) - Held that - The assessee has debited interest to the Profit 62, 44, 417/. Penalty on disallowance of carry forward of depreciation - Held that - CIT(Appeals) considered this issue in detail and noted that the assessee had increased the claim of depreciation due to various disallowances because of which entire current year s depreciation was absorbed in the current year itself. Therefore it may be a mistake committed by assessee in computing the income. Therefore penalty was correctly cancelled in the matter on claim of depreciation. Even otherwise on the basis of computation of income as per MAT provisions no penalty would be levied against the assessee. Therefore this ground of appeal of departmental appeal is also dismissed.

Summary

Issues Involved:
1. Deletion of penalty on disallowance of interest under Section 36(1)(iii) of the Income Tax Act.
2. Deletion of penalty on capitalization of Web & Software Development expenses.
3. Deletion of penalty on reallocation of expenses.
4. Deletion of penalty on reduction of deduction under Section 80IC.
5. Deletion of penalty on disallowance of carry forward of depreciation loss.
6. Confirmation of penalty on excess deduction claimed under Section 80IC.

Detailed Analysis:

1. Deletion of Penalty on Disallowance of Interest under Section 36(1)(iii):
The assessee had debited interest to the profit and loss account of the Dera Bassi unit, whereas the funds were used by the Baddi manufacturing unit. The Assessing Officer estimated the interest on debit balances and disallowed the entire interest claimed, resulting in a reduction of deduction under Section 80IC. The CIT(A) found that the disallowance was based on an estimate and notional, and thus did not warrant a penalty under Section 271(1)(c). The tribunal agreed, noting that all particulars of the interest claim were disclosed, and the disallowance was merely a proportionate disallowance based on an estimate.

2. Deletion of Penalty on Capitalization of Web & Software Development Expenses:
The assessee claimed an amount on account of web and software development expenses as revenue expenditure. The Assessing Officer treated this expenditure as capital and allowed depreciation, resulting in a disallowance. The CIT(A) found that the issue was a difference of opinion on the nature of the expenditure and did not warrant a penalty for concealment. The tribunal upheld this view, noting that the claim was based on the assessee's opinion and did not constitute concealment.

3. Deletion of Penalty on Reallocation of Expenses:
The assessee had three units and claimed deduction under Section 80IC on the profits of the Baddi manufacturing unit. The Assessing Officer reallocated expenses among the units on a turnover basis, reducing the deduction under Section 80IC. The CIT(A) found that the reallocation was a matter of opinion and did not constitute concealment of income. The tribunal agreed, citing precedents where penalties were canceled under similar circumstances, as the assessee had not concealed any particulars of its income.

4. Deletion of Penalty on Reduction of Deduction under Section 80IC:
The Assessing Officer reduced the deduction under Section 80IC by reallocating interest and common expenses, and by noting a discrepancy between the claimed deduction and the amount certified by the auditor. The CIT(A) canceled the penalty for reallocation of expenses but confirmed it for the excess claim due to the discrepancy. The tribunal found that the penalty could not be imposed for the reallocation of expenses as it would result in double addition. However, it upheld the penalty for the excess claim, noting that it was not a bona fide mistake.

5. Deletion of Penalty on Disallowance of Carry Forward of Depreciation Loss:
The Assessing Officer disallowed the carry forward of current year's depreciation loss due to various additions, which absorbed the entire depreciation. The CIT(A) found that the mistake in the computation of income was wiped out by the additions and that the penalty for concealment was not warranted. The tribunal agreed, noting that the penalty was already levied on various additions, and the mistake in claiming depreciation was not intentional.

6. Confirmation of Penalty on Excess Deduction Claimed under Section 80IC:
The CIT(A) confirmed the penalty for the excess deduction claimed under Section 80IC, noting that the discrepancy between the claimed amount and the amount certified by the auditor was not a bona fide mistake. The tribunal upheld this view, citing the Delhi High Court's decision in the case of Zoom Communication Pvt. Ltd., which held that making a wholly untenable claim without any basis could attract a penalty under Section 271(1)(c).

Conclusion:
The tribunal dismissed the departmental appeal and allowed the assessee's cross-objection, setting aside the part of the CIT(A)'s order that sustained the penalty. The tribunal found that penalties for disallowance of interest, web/software development expenses, reallocation of expenses, and carry forward of depreciation loss were not warranted. However, it upheld the penalty for the excess deduction claimed under Section 80IC due to the discrepancy with the auditor's certification.