2010 (1) TMI 842 - AT - Income Tax

Penalty levied by the AO u/s.271 1 c of the Income Tax Act - Deduction u/s.33AC of the Act - assessee has furnished inaccurate particulars of its income and by falsely claiming deduction u/s.33AC of the Act has concealed the particulars of its income and tried to evade tax on interest income - Held that - interest income as income from other sources, Tribunal has already deleted the addition and has directed the AO to treat the income as business income and therefore penalty to that extent stands deleted Levy of penalty on non offering of income as long term capital gains - Held that - penalty is not to be levied automatically in every case of non-payment or short payment of tax but the conditions expressly mentioned in the section for its application should be satisfied, assessee has furnished all the particulars relevant for the computation of its income and there is no furnishing of any inaccurate particulars of income justifying the penalty u/s.271 1 c of the Income Tax Act. Dharmendra Textile Processors (2008 - TMI - 31520 - SUPREME COURT ) penalty levied on this ground is also deleted, assessee s appeals are allowed.

Issues Involved:
1. Confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Treatment of interest income as "Income from Other Sources" versus "Business Income".
3. Assessment of income from the relinquishment of rights under a Bare Boat Charter-cum-Demise (BBCD) agreement as capital gains.
4. Claim of deduction under Section 33AC of the Income Tax Act.
5. Disallowance of excess deduction on account of profit on recruitment of personnel and agency division profit.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The assessee appealed against the CIT[A]'s order confirming the penalty levied by the AO under Section 271(1)(c) on the grounds of furnishing inaccurate particulars of income and concealing particulars of income by falsely claiming deductions under Section 33AC. The Tribunal held that the penalty for non-offering of income as long-term capital gains was not justified as the assessee had furnished all relevant details and there was no furnishing of inaccurate particulars. The penalty was accordingly deleted.

2. Treatment of Interest Income:
The AO assessed the interest income of Rs.1,03,95,219/- as "Income from Other Sources" instead of "Business Income" and excluded it from the deduction under Section 33AC. The assessee argued that the interest income was integral to its business activities. The Tribunal deleted the addition of interest income as "Income from Other Sources" and directed the AO to treat it as "Business Income," thus deleting the penalty on this count.

3. Assessment of Income from Relinquishment of Rights under BBCD Agreement:
The assessee claimed depreciation on a vessel, 'NEEL AKASH,' which was later relinquished under a BBCD agreement. The AO treated the relinquishment of rights as a transfer of a capital asset and assessed the income as long-term capital gains. The CIT[A] confirmed this assessment. The Tribunal found that the assessee had furnished all relevant details and explanations, which were not found to be incorrect, and thus deleted the penalty levied on this ground.

4. Claim of Deduction under Section 33AC:
The AO restricted the deduction under Section 33AC to Rs.6,15,12,647/- after excluding the interest income from business income. The CIT[A] upheld this decision. The Tribunal, however, deleted the penalty on this ground as the interest income was directed to be treated as business income.

5. Disallowance of Excess Deduction on Account of Profit on Recruitment of Personnel and Agency Division Profit:
For the A.Y 2004-05, the AO disallowed excess deduction of Rs.3,46,505/- on profit on recruitment of personnel and Rs.90,249/- on agency division profit, treating them as income from other sources. The assessee argued that these receipts were part of business activities. The Tribunal found that the assessee had furnished all necessary details and explanations, which were not found to be false, and thus deleted the penalty on this ground.

Conclusion:
The Tribunal allowed the assessee's appeals, deleting the penalties levied under Section 271(1)(c) for both assessment years 2003-04 and 2004-05. The order was pronounced on 13.1.2010.

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