2016 (5) TMI 415 - AT - Income Tax

Penalty u/s 271(1)(c) - withdrawal of claim for deduction of interest expenditure / financial charges - Held that - The complete terms and conditions along with copies of loan agreements, of the loans so obtained by the holding company which are stated to be at the behest and on behalf of the assessee company should have been brought on record with the Revenue along with details of terms of cancellation( deed of cancellation ) of the MOU with the said HDIL as the loans have been obtained by holding company on behalf and at behest of the assessee company to pay funds earlier received by the assessee company which was stated to have been advanced to HDIL and are now been recalled from HDIL pursuant to cancellation of MOU dated 15-10-2007 with HDIL and instead of bringing complete and true facts on record to substantiate its claim of allowance of interest/financial charges expenditure, the assessee company chose to take plea of withdrawing its claim to buy peace and that the losses in any case will not be allowed to be carried forward and set off in subsequent years in view of provisions of Section 79 of the Act of 1961 as the holding company has divested its shareholding in the assessee company in the year 2011 while return of income in which said claim of allowance of interest/ financial charges expenditure was made , was filed on 22.09.2009 , so it is incumbent on the part of the assessee company to explain that the claim of the allowance of interest / financial charges expenditure was legitimate and bona-fide within the four corners of the Act of 1961, when the return of income was filed in the year 2009 and not the later developments happening in the year 2011. Thus, keeping in view all these peculiar facts and circumstances of the case, in our considered view and in the interest of justice, one more opportunity needs to be given to the assessee company to bring all the relevant and cogent material on record with the revenue to substantiate that its claim of allowance of interest/financial charges expenditure was bona-fide and legitimate, the matter is now hereby set aside to the file of the A.O. to decide the issue of leviability of penalty u/s 271(1)(c ) of the Act , de-novo after considering all the relevant facts and evidences to be filed by the assessee company in its defense , after affording adequate opportunity to the assessee company of being heard. - Decided in favour of assessee for statistical purpose.

Summary

Issues Involved:
1. Whether the penalty under Section 271(1)(c) of the Income Tax Act, 1961, for furnishing inaccurate particulars of income leading to concealment of income, is leviable on the assessee company.
2. Whether the assessee company's claim for deduction of interest expenditure/financial charges was bona fide and legitimate.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) for Furnishing Inaccurate Particulars of Income:

The assessee company, engaged in the business of development and construction of complexes, claimed a deduction of ?14,91,61,322/- as interest expenditure in its Profit & Loss account for the assessment year 2009-10. During the assessment proceedings, the AO questioned the legitimacy of this claim, leading the assessee company to withdraw the claim and file a revised computation of income. The AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income, asserting that the withdrawal was prompted by the scrutiny assessment and not voluntary. The AO relied on the Supreme Court's decision in UOI v. Dharmendra Textiles Processors, emphasizing that claiming wrong or excessive deductions amounts to concealment of income.

The CIT(A) upheld the AO's decision, noting that the withdrawal of the claim was not voluntary but occurred after the AO's query. The CIT(A) observed that the assessee company did not provide evidence to support its claim, thus failing to discharge its onus of proof. The CIT(A) relied on the Supreme Court's decision in JCIT v. Saheli Leasing & Industries Ltd., affirming that penalty is applicable even when returned losses are reduced. The CIT(A) concluded that the assessee company furnished inaccurate particulars of income, justifying the penalty under Section 271(1)(c).

2. Bona Fide and Legitimacy of the Claim for Deduction of Interest Expenditure:

The assessee company argued that the interest expenditure was incurred for business purposes, related to advances given to HDIL for a proposed development project under an MOU, which was later canceled. The assessee company claimed that the interest was a legitimate business expense, disclosed in the computation of income. The assessee company contended that the withdrawal of the claim was to avoid litigation and due to the applicability of Section 79 of the Act, which would disallow the carry forward of losses due to a change in shareholding.

The Tribunal noted that the assessee company did not provide complete details and evidence to substantiate the bona fide nature of its claim. The Tribunal observed that the AO accepted the withdrawal without verification and invoked penalty provisions. The Tribunal emphasized the need for the assessee company to provide evidence of the loans obtained by the holding company on its behalf and the terms of the MOU with HDIL. The Tribunal set aside the penalty order and remanded the matter to the AO for de novo consideration, directing the assessee company to furnish all relevant evidence to substantiate its claim.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, setting aside the penalty order and remanding the matter to the AO for fresh consideration, emphasizing the need for the assessee company to provide comprehensive evidence to support the bona fide nature of its claim for interest expenditure.