2014 (3) TMI 252 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Disallowance of interest and dividend income u/s 36(1)(vii) of the Act - Disallowance of depreciation on leased assets - Held that - The issue of allowability of deduction on dividend and interest income earned from the long term finances under section 36(1)(viii) of the Act is a debatable one and there are plethora of decisions that penalty cannot be levied on case where two view possible - merely an addition has been confirmed in the quantum proceedings, the penalty does not become automatically leviable The decision in COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT followed when the assessee furnishes all the details of its expenditure as well as its income in the return of income, which details, in themselves, are not found to be inaccurate or nor can be viewed as the concealment of income on its part - It is up to the authorities to accept its claim in the return or not - Mere rejection of claim will not amount to furnishing of inaccurate particulars or concealment of income and hence, no penalty can be levied under section 271(1)(c) of the Act thus, the case of the assessee does not attract the provisions of section 271(1)(c) of the Act and therefore the penalty levied/confirmed on this count stands deleted. With regard to disallowance of depreciation on the sale and lease back transaction has given the relief to the assessee with regard to leasing of assets to Maharashtra Esters and Keytones Pvt. Ltd. and allowed depreciation thus, the penalty on account of the disallowance set aside - Allowability of depreciation on asset given on lease to Konkan Railway Corp. Ltd. and Andhra Pradesh State Electricity Board has been remitted back to the AO and directed to examine the issue of sale and lease back agreement - When the said issue has been restored to the file of the AO, thus, the penalty on this aspect should also be remitted to AO for fresh adjudication - Decided in favour of Assessee.

Summary

Issues involved:
Penalty under section 271(1)(c) for disallowance of deduction claimed under section 36(1)(vii) and disallowance of depreciation on assets acquired under sale and lease back transaction.

Analysis:

Issue 1: Disallowance of deduction claimed under section 36(1)(vii)
- The assessee claimed deductions under section 36(1)(vii) for interest and dividend income, which the AO disallowed.
- The Ld.CIT(A) confirmed the penalty on disallowance of deduction under section 36(1)(vii).
- The assessee argued that interest and dividend income from long-term finances are eligible for deduction under section 36(1)(viii) based on various tribunal decisions.
- The Tribunal noted that the issue is debatable, and penalty cannot be levied when two views are possible.
- Citing the Reliance Petroproducts case, the Tribunal held that the mere rejection of a claim does not amount to concealment of income, hence no penalty under section 271(1)(c) is applicable.
- Considering the legal position and facts, the penalty on this count was deleted.

Issue 2: Disallowance of depreciation on assets acquired under sale and lease back transaction
- The AO disallowed depreciation on assets acquired under sale and lease back transaction.
- The Ld.CIT(A) partly confirmed the disallowance, which was further appealed.
- The Tribunal deleted the disallowance on normal lease transactions but set aside the sale and lease back transaction for fresh assessment.
- The Tribunal granted relief on leasing assets to certain entities and allowed depreciation.
- The penalty on disallowance of depreciation on sale and lease back transaction was deleted.
- The issue of depreciation on assets leased to other entities was restored to the AO for fresh assessment based on the Tribunal's decision.
- Citing precedent, the Tribunal restored the penalty matter to the AO for a fresh decision in line with the quantum proceedings.
- The impugned decision on this issue was overturned, and the matter was restored to the AO for reconsideration.

In conclusion, the appeals filed by the assessee were treated as allowed, and the penalties were deleted or restored for fresh assessment based on the Tribunal's findings.