2017 (3) TMI 40 - HC - Income Tax

Penalty u/s 271(1)(c) - claim of deduction on account of special Reserve under Section 36(1) (viii) of the Act including in its profits, dividend and interest income for providing long term finance for industrial / agricultural development / infrastructure facility in India - Held that - The issue of dividend and interest income forming part of profits of business of long term finance is a debatable issue. For the aforesaid conclusion, the impugned order relied upon the decision of the Karnataka High Court in Commissioner of Income Tax Vs. Canfin Homes Ltd. 2011 (8) TMI 178 - KARNATAKA HIGH COURT wherein on merits, the assessee s claim therein for deduction under Section 36(1)(viii) of the Act on account of dividend income and interest was allowed as being a part of profits earned in the business of providing long term finance for industrial / agricultural development / infrastructure facility in India. Moreover, the Tribunal also records a finding of fact that the respondent assessee had in its return of income claimed interest and dividend income as being available for deduction under Section 36(1)(viii) of the Act in its Return of Income and mere rejection of a claim for deduction will not amount to filing inaccurate particulars of income. In the above circumstances, the impugned order holds that no penalty is imposable, notwithstanding the fact that in quantum proceedings, the respondent assessee had accepted the order of the CIT(A), adverse to it on the above issues. - Decided in favour of assessee Penalty u/s 271(1)(c) - depreciation claim of sale and lease back transactions - Held that - No substantial question of law arises at this stage as the entire issue is restored to the Assessing Officer for fresh consideration on the issue of penalty.

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal for Assessment Years 1997-98 and 1998-99.
2. Justification for deleting penalty under Section 271(1)(c) of the Income Tax Act related to deduction u/s 36(1)(viii) on dividend and interest income.
3. Setting aside penalty issue regarding assets leased to specific entities.
4. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act concerning depreciation claim of sale and lease back transactions.

Analysis:

Issue 1:
The appeal challenges the order of the Income Tax Appellate Tribunal for Assessment Years 1997-98 and 1998-99. The Tribunal's decision is based on the debatable nature of certain issues related to deductions and penalties under the Income Tax Act.

Issue 2:
Regarding the first question of law, the Tribunal justified deleting the penalty imposed under Section 271(1)(c) of the Act. The respondent assessee had claimed deduction under Section 36(1)(viii) for interest and dividend income. Despite initial disallowance by the Assessing Officer and CIT(A), the Tribunal considered the issue debatable based on relevant case law. The Tribunal concluded that no penalty was imposable as the issue was debatable, and the claim was made in good faith without inaccurate particulars of income.

Issue 3:
The second question pertained to penalty issues related to assets leased to specific entities. The Assessing Officer disallowed depreciation on leased assets, considering them as finance transactions. The Tribunal set aside previous orders and restored the issue for fresh examination. The penalty proceedings were also restored to the Assessing Officer for consideration after the quantum proceedings were finalized.

Issue 4:
Regarding the third question, the Tribunal had already decided in favor of the respondent assessee in the quantum appeal concerning depreciation on sale and lease back transactions. The appeal filed by the Revenue was dismissed by the Court, affirming the respondent's entitlement to the claimed depreciation benefit. Therefore, this question did not survive for consideration as it did not raise any substantial question of law.

In conclusion, the appeal was dismissed, and no costs were awarded. The Tribunal's decisions on penalty issues were upheld based on the debatable nature of the issues and the outcomes of the quantum proceedings.