2014 (7) TMI 681 - AT - Income Tax

Penalty u/s 271(1)(c) Concealed income as surrendered certificates Held that - The AO is required to arrive at a finding that explanation offered by the assessee in the event he offers one is false or not bonafide - The AO must record a finding that the explanation is not only bonafide but all the facts relating to the same and the material income was not disclosed by him - the addition made by AO on account of surrender Certificates u/s. 41(1) of the Act was on the basis of the details filed in the return of income and after applying the provisions of section 41(1) of the Act the decision in COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT followed - the facts does not warrant levy of penalty - CIT(A) has rightly deleted the penalty Decided against Revenue. Excess claim of foreign travel Inaccurate particulars furnished Held that - There is no iota of any concealment brought out on record even the disallowance is just for the sake of disallowance - assessee has filed complete details in respect to foreign travel expenses before the AO during the course of assessment proceedings and also filed explanation during the course of penalty proceeding u/s. 271(1)(c) of the Act - nowhere the AO has proved concealment or the explanation furnished by assessee is false or not bonafide - the assessee is not liable for penalty for concealment of income u/s. 271(1)(c) of the Act Decided against Revenue. Excess claim of depreciation on leasehold properties Inaccurate particulars furnished Held that - Once the assessee has taken lease for 99 years the assessee is entitled for depreciation - Once the assessee is entitled for depreciation then where is the question of levy of penalty - the assessee filed complete details of depreciation before the AO while filing the return of income and also during assessment proceedings - there is no question of concealment of income on depreciation - CIT(A) has rightly deleted the penalty Decided against Revenue. Income earned from dividend Held that - A return of investment cannot be construed to mean expenditure and if it is construed to mean expenditure in the sense of physical spending still the expenditure was not such as could be claimed as an allowance against the profits of the relevant accounting year under sections 30 to 37 of the Act and therefore section 14A cannot be invoked - The decision in CIT v. Walfort Share & Stock Brokers (P.) Ltd. 2010 (7) TMI 15 - SUPREME COURT followed - the order of CIT(A) is upheld in deleting the penalty as the deemed dividend or estimated dividend cannot be subject matter of penalty u/s. 271(1)(c) of the Act and no penalty can be levied for concealment of income on such income Decided against Revenue. Addition u/s 14A r.w. Rule 8D Expenses related to exempted income Held that - The assessee s investments in Bonds and shares in companies and units of mutual funds which generated its exempt dividend income or Tax free interest were made out of its own funds instead of funds borrowed from the Certificate Holders - neither the fund borrowed from the Certificate Holders nor the interest payable on borrowed fund could be attributed to the exempt dividend income or tax free interest and hence no part of the Interest could be disallowed in terms of Rule-8D(2)(ii) of the Rules - If so the disallowance in terms of Rule 8D(2)(ii) of the rules is required to be taken at nil as shown by assessee in its enclosed Revised computation of disallowance under Rule-8D of the rules - The assessee is able to prove that the exempted income earned is out of its own funds not from borrowed funds Decided against Revenue. Nexus between exempted dividend income and Demat Account Held that - Assessee could not substantiate how this demat expenses are correlated with long term capital gain and short term capital gain there is no reason to believe the argument of assessee that the demat charges are not on account of dividend income - the dividend income is earned out of investments held in demat account but what is the proportion of this expenditure cannot be said at this stage because facts are not available regarding proportionate expenses Decided partly in favour of Revenue. LTCG disallowed Price per share arbitrarily considered Held that - The AO has no power to enhance the sale price unless he proves that the consideration for transfer of capital asset was understated in the instrument or the consideration received is lesser than what actually it is Relying upon ITO Vs. K. P. Varghese 1981 (9) TMI 1 - SUPREME Court there is no evidence before AO that assessee has received amount higher than the declared sum of Rs. 53.59 lacs and that also without any basis Decided against Revenue.

Summary

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income-tax Act, 1961 for Assessment Years 1993-94 and 1994-95.
2. Deletion of penalty related to excess claim of foreign travel expenses.
3. Deletion of penalty concerning excess claim of depreciation on leasehold properties.
4. Deletion of penalty for concealment of dividend income.
5. Deletion of addition made by invoking Rule 8D read with Section 14A of the Income-tax Act, 1961.
6. Deletion of disallowance of long-term capital loss.

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) for AY 1993-94 and 1994-95:
The primary issue was the deletion of penalties levied by the Assessing Officer (AO) under Section 271(1)(c) concerning surrender certificates. The AO had added Rs. 2,15,80,546/- during the assessment, which was later reduced to Rs. 90,60,118/- by the Tribunal. The AO imposed penalties, considering this as concealed income. However, the CIT(A) deleted the penalties, stating that the AO did not prove the explanation provided by the assessee to be false or not bona fide. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's decision in CIT Vs. Reliance Petro Products Ltd., which emphasized that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars of income.

2. Deletion of Penalty for Excess Claim of Foreign Travel Expenses:
The AO disallowed foreign travel expenses of Rs. 16,77,208/- for AY 1993-94 and Rs. 43,33,186/- for AY 1994-95, leading to penalties under Section 271(1)(c). The CIT(A) deleted these penalties, noting that the AO did not prove the claim to be false. The Tribunal confirmed this, stating that the issue was debatable and the assessee had provided complete details during the assessment proceedings.

3. Deletion of Penalty for Excess Claim of Depreciation on Leasehold Properties:
The AO disallowed depreciation claims on leasehold properties, leading to penalties. The CIT(A) deleted these penalties, reasoning that the claim was based on a legal interpretation that the assessee was a beneficial owner of the properties. The Tribunal upheld this, noting that the issue was debatable and the assessee had provided full details during the assessment.

4. Deletion of Penalty for Concealment of Dividend Income:
The AO estimated dividend income of Rs. 91,00,000/- and imposed penalties. The CIT(A) deleted these penalties, stating that the addition was based on a legal issue. The Tribunal confirmed this, referencing the Supreme Court's decision in CIT v. Walfort Share & Stock Brokers (P.) Ltd., which clarified that such estimations do not warrant penalties for concealment of income.

5. Deletion of Addition under Rule 8D read with Section 14A:
The AO disallowed Rs. 2,77,57,075/- on account of interest and Rs. 20,24,545/- as demat account charges. The CIT(A) reduced the disallowance to Rs. 45,45,263/-, stating that the interest was attributable to investments made as per RBI guidelines. The Tribunal upheld this, noting that the interest expenses were not related to the exempt income and the demat charges were not solely for earning dividend income.

6. Deletion of Disallowance of Long-Term Capital Loss:
The AO disallowed a long-term capital loss of Rs. 3,16,71,690/-, valuing shares at Rs. 5.91 per share instead of Rs. 1/- as claimed by the assessee. The CIT(A) deleted this disallowance, stating that the AO had no basis to estimate the share value higher than the agreed price in the MOU. The Tribunal confirmed this, referencing the Supreme Court's decision in ITO Vs. K. P. Varghese, which held that the AO must prove any understatement of consideration.

Conclusion:
The Tribunal dismissed the appeals of the revenue for AY 1993-94 and 1994-95, confirming the deletion of penalties and disallowances by the CIT(A). The appeal for AY 2008-09 was partly allowed, with the Tribunal confirming the deletion of interest disallowance but remanding the issue of demat charges for further examination. The Tribunal emphasized the importance of providing accurate particulars and the necessity for the AO to prove any concealment or false claims made by the assessee.