2010 (9) TMI 660 - AT - Income Tax

Penalty - assessee claimed deduction on account of diminution in the value of investments - tax u/s.115JB was determined by making an addition on account of diminution in the value of investment, which finally stands deleted by the Tribunal - the additions made on account of diminution of value of investment and interest disallowances u/s.43B are not relevant to computation - additions in themselves, do not call for the imposition of penalty - appeal dismissed

Summary

Issues:
- Appeal against deletion of penalty u/s.271(1)(c) by Commissioner of Income-tax (Appeals)
- Disallowance of deduction on diminution in the value of investments and interest amount
- Assessment under regular provisions of the Act substituted with u/s.115JB
- Imposition and deletion of penalty u/s.271(1)(c) by Assessing Officer
- Legal basis for sustaining penalty on disallowances
- Tax credit availability and applicability u/s.115JB

Analysis:

1. The appeal was against the deletion of penalty u/s.271(1)(c) by the Commissioner of Income-tax (Appeals) related to disallowances made by the Assessing Officer. The assessee claimed deductions for diminution in the value of investments and interest amount, which were disallowed by the AO.

2. The AO imposed a penalty on these disallowances, which was deleted by the first appeal. The AO computed income under regular provisions, but it was later substituted with u/s.115JB by the AO. The additions for penalty were made under regular provisions, which became irrelevant due to final computation u/s.115JB.

3. The Tribunal found no basis to sustain penalties on the disallowed deductions. The first addition was for diminution in the value of investments, where the AO disagreed with the assessee's treatment of shares as stock. The second addition was for interest, where a possible view allowed deduction on conversion of interest into a loan, a view supported by tribunal orders.

4. The argument for sustaining penalties even after computation u/s.115JB was rejected. The contention about tax credit availability u/s.115JB was refuted, as the legal position before 2006-2007 did not allow tax credit for u/s.115JB. The Tribunal upheld the deletion of penalties u/s.271(1)(c) as the disallowances were not relevant to the final computation under u/s.115JB.

5. In conclusion, the Tribunal dismissed the appeal, upholding the order deleting the penalty u/s.271(1)(c) as the disallowances were not considered relevant to the final computation under u/s.115JB.