2017 (5) TMI 534 - AT - Income Tax

Penalty u/s 271(1)(c) - notice u/s 274 - no business during the year but still claimed the expenditure on depreciation and non-payment of certain interest expenses - defect in the notice - Held that - Undoubtedly, notice u/s 274 was duly served on the assessee and the relevant clause of the standard printed form was duly ticked by the Ld. AO which shows due application of mind qua penalty proceedings. Mere non-deletion of few words, in our opinion, on the facts of the case, has not caused any prejudiced to the assessee particularly when the penalty proceedings were actively contested by him before the Ld. AO. The penalty could not be deleted merely on the basis of defect pointed by the Ld. AR in the notice and therefore, the legal grounds raised are rejected. We find that the assessee has suffered disallowance u/s 32 against depreciation & u/s 43B due to non-payment of certain interest expenses within stipulated period of time. It is not in dispute that the assessee did not carry out any business activity during the year. It is further noted that the block of asset in the books of accounts did not cease to exist and the assessee has duly explained that the suspension in business was temporary which could not be controverted by the revenue. All these factors gives strength to the various arguments of Ld. AR. So far as addition u/s 43B is concerned, we find that the nature or quantum thereof is not in dispute and the assesse, following mercantile system of accounting could debit the same in his Profit & Loss Account. It was only due to the specific provisions of Section 43B that it has suffered the said disallowance. Therefore, on the basis of these factors, we find that there were no furnishing of inaccurate particulars of income by the assessee and the penalty deserves to be deleted.

Summary

Issues involved:
Assessment of penalty u/s 271(1)(c) for inaccurate particulars of income, defective notice u/s 274, applicability of Section 292B, disallowance of depreciation u/s 32, disallowance of interest expenses u/s 43B, eligibility to carry forward business losses.

Analysis:

1. Assessment of Penalty u/s 271(1)(c):
The appeal challenged the penalty imposed on the assessee for furnishing inaccurate particulars of income. The appellant raised additional grounds of appeal on legal basis, arguing that the penalty notice was defective as it did not delete appropriate words, citing relevant case laws. The revenue contended that the defect in the notice did not vitiate the penalty proceedings as the assessee was aware of the grounds for penalty. The tribunal observed that the penalty was initiated and levied on the same ground, and the notice served on the assessee was in conformity with the intent of the act. The tribunal rejected the legal grounds raised by the appellant, citing precedents and confirming the penalty.

2. Disallowance of Depreciation u/s 32 and Interest Expenses u/s 43B:
The appellant contended that the disallowance of depreciation u/s 32 and interest expenses u/s 43B was unjustified due to adverse business conditions affecting business operations temporarily. The tribunal noted that the appellant did not carry out business activities during the year but explained that the suspension was temporary, supported by the existence of assets in the books. Regarding disallowance u/s 43B, the nature and quantum were not in dispute, and the appellant followed the mercantile system of accounting. Citing relevant case law, the tribunal found no inaccurate particulars of income furnished by the assessee, leading to the deletion of the penalty and allowing the appeal on merits.

3. Eligibility to Carry Forward Business Losses:
The appellant's inability to carry forward business losses due to filing returns belatedly was highlighted. The tribunal considered the circumstances, including the temporary suspension of business, and found that the appellant stood to gain nothing by making inaccurate claims. The tribunal, based on the arguments presented and the facts, allowed the appeal partly, deleting the penalty imposed on the assessee.

This detailed analysis of the judgment provides insights into the legal issues addressed, arguments presented by both parties, and the tribunal's reasoning leading to the final decision.