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2015 (8) TMI 417 - AT - Income TaxPenalty u/s. 271(1)(c) - interest receipt consequent to the denial of deduction u/s. 10B claimed by the assessee - Held that - In the facts of the present case, the interest income stands earned on deposits placed with the bank/s for fixed term/s (FDRs) and inter-corporate deposits (ICDs). The A.O. has further given a categorical finding of the interest income, which is even otherwise apparent, i.e., from the manner in which it is being derived, as having no direct relationship with the assessee s business activity. AR on this being pointed out during hearing, i.e., that the interest income stands specifically assessed u/s.56, i.e., as income from other sources, for A.Y. 1997-98, would submit that it stands assessed as business income for the subsequent two years. Further, the tribunal vide its order for A.Y. 2000-01 held that in light of the fact that the assessee is entitled to relief u/s.10B of the Act on its receipt, it becomes naturally entitled to deduction there-under on the interest income. We find little merit in the assessee s said contention in view of the undisputed facts of the case, i.e., of the interest income in the undisputed facts of the case arising out of bank FDRs and ICDs. In fact, the A.O. s finding that the same has no nexus with the assessee s business, remains unchallenged. Rather, the assessee s plea in the appellate proceedings was for the netting of the interest income in-as-much as the assessee had also paid interest. While the interest income stands specifically assessed as income from other sources for A.Y. 1997-98, there is no head-wise classification of the income for A.Y. 1998-99, which though cannot be read to imply or mean that the said income stands assessed as business income, particularly considering the clear finding/s in the matter and the undisputed facts of the case. For A.Y. 1999-2000, again, there is a clear reference by the A.O. to the reasons mentioned by him in the assessment order for A.Y. 1998-99, the immediately preceding year. In fact, the A.O., and only rightly, has gone further to state that the interest income could not be regarded as derived from the assessee s business That is to say, that the interest income does not form part of the assessee s business, the same could not in any case be said to be derived there-from, a condition precedent for the income of the assessee s export business from being eligible for deduction u/s. 10B. Penalty u/s. 271(1)(c) confirmed - Decided against assessee.
Issues Involved:
1. Maintainability of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. 2. Disallowance of Section 10B benefit on payment to Cybertech International Corporation Ltd. (CIC Ltd.) and its subsidiaries. 3. Deduction under Section 10B on certain receipts contested by the Revenue. Detailed Analysis: 1. Maintainability of Penalty Levied under Section 271(1)(c): The core issue in the appeals was whether the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, was maintainable. The penalty was related to interest income for which the assessee had claimed a deduction under Section 10B, which was denied following the Supreme Court's decision in Liberty India vs. CIT [2009] 317 ITR 218 (SC). - Assessee's Argument: The assessee argued that the claim for deduction under Section 10B on the interest income was made based on earlier decisions of the Bombay High Court in CIT vs. Paramount Premises (P.) Ltd. [1991] 190 ITR 259 (Bom) and CIT vs. Nagpur Engineering Co. Ltd. [2000] 245 ITR 806 (Bom). The assessee contended that the claim was not without a valid basis and that there was a conflict in judicial views at the relevant times, precluding penalty for concealment or furnishing inaccurate particulars of income. - Revenue's Argument: The Revenue argued that there was no basis for allowing the benefit of Section 10B on interest income as the interest income had no nexus with the assessee's business activity and was rightly assessed as income from other sources. The Revenue relied on the findings of the Assessing Officer (A.O.) and several judicial precedents to support their case. - Tribunal's Findings: The Tribunal analyzed Section 10B(1) and relevant judicial precedents, including the Supreme Court's decision in CIT vs. Govinda Choudhary and Sons [1993] 203 ITR 881 (SC), which clarified that interest income partakes the same character as the receipt for which it was otherwise entitled. The Tribunal noted that the interest income in the present case was earned on fixed deposits and inter-corporate deposits, having no direct relationship with the assessee's business activity. The Tribunal found that the assessee's claim for deduction under Section 10B on interest income was not substantiated and was a false plea. The Tribunal concluded that the penalty under Section 271(1)(c) was rightly levied as the assessee failed to provide a plausible explanation for its claim. 2. Disallowance of Section 10B Benefit on Payment to Cybertech International Corporation Ltd. (CIC Ltd.) and its Subsidiaries: The penalty was upheld on the expenditure related to payments to CIC Ltd. and its subsidiaries as the claim for deduction under Section 10B was found not bona fide. - Tribunal's Findings: The Tribunal noted that this ground was not pressed by the assessee's Authorized Representative during the hearing and thus dismissed it as not pressed. 3. Deduction under Section 10B on Certain Receipts Contested by the Revenue: The Revenue's appeals related to the receipts on which the deduction under Section 10B was allowed by the Tribunal in its combined order for the years under reference dated 02.03.2012. - Revenue's Argument: The Revenue argued that the matter should be kept in abeyance as the deletion of the disallowance was contested before the High Court, which had admitted the appeals. Reliance was placed on the decision in CIT vs. Popular Jewellers [1999] 238 ITR 676 (Del). - Tribunal's Findings: The Tribunal found the plea misplaced, stating that the issue could not be kept undecided merely because it was in appeal before a higher appellate forum. The Tribunal dismissed the Revenue's appeals at the threshold but reserved the right for the Revenue to pursue the matter on merits if the High Court decided in its favor. The Tribunal noted that reliance on Popular Jewellers was rendered of no consequence in the given circumstances. Conclusion: The Tribunal dismissed both the assessee's and the Revenue's appeals, upholding the penalty under Section 271(1)(c) for the disallowed deduction under Section 10B on interest income and dismissing the ground related to payments to CIC Ltd. as not pressed. The Tribunal also dismissed the Revenue's appeals regarding the deduction under Section 10B on certain receipts but reserved the right for the Revenue to pursue the matter if the High Court decided in its favor.
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