2018 (4) TMI 16 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowances on account of setting off the income from the capital work in progress as claim of depreciation on non-factory building - Held that - We find that assessee with a view to set up a new unit for producing poster paper raised funds through equity financing and due to delay in implementation of the project placed the funds for a short period in the form of FDR and also a part of funds were invested in mutual fund and from these investments the assessee earned income in the form of interest and profit from mutual funds. The said incomes were disclosed by the assessee in the books of account and in the balance sheet. Instead of declaring the same as income the same were reduced from the capital work in progress and therefore the assessee had disclosed the full particulars of such income in its balance sheet. In fact the Assessing Officer came to know about these incomes from the particulars filed by the assessee itself therefore it cannot be said that the assessee had concealed particulars of income or had furnished inaccurate particulars of income. Learned CIT(A) has rightly deleted the penalty. - Decided against revenue

Summary

Issues Involved:
Appeal against deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961 by CIT(A) for assessment year 2006-07.

Analysis:

1. Issue 1 - Deletion of Penalty on Setting Off Income:
The Revenue contended that the CIT(A) erred in allowing the appeal of the assessee regarding the deletion of penalties imposed under section 271(1)(c) of the IT Act without considering the facts and circumstances of the case. The Revenue argued that the assessee failed to provide a justified explanation for disallowances related to setting off income from capital work in progress and depreciation on non-factory building. However, the CIT(A) relied on the case law of Reliance Petroproducts (P) Ltd. to justify the deletion of the penalty. The CIT(A) found that the assessee had disclosed all relevant details in the books of accounts and during assessment proceedings, and the disallowances were due to a difference in interpretation, not concealment of income. The ITAT upheld the CIT(A)'s decision, stating that the assessee did not conceal income or furnish inaccurate particulars, leading to the dismissal of the Revenue's appeal.

2. Issue 2 - Concealment of Interest Income and Mutual Fund Profits:
The Revenue argued that the assessee concealed interest income and profits from mutual funds by adjusting them against capital work in progress, contrary to the decision in Tuticorin Alkali Chemicals case. On the other hand, the assessee explained that the funds were temporarily parked in FDRs and mutual funds due to project delays, and the incomes were disclosed in the balance sheet. The assessee reduced these incomes from share issue expenses included in the project cost. The ITAT found that the assessee disclosed all relevant details to the Assessing Officer and did not conceal income. The ITAT upheld the CIT(A)'s decision to delete the penalty, citing the Reliance Petroproducts case to support the assessee's position.

3. Cross Objections:
The assessee filed Cross Objections supporting the CIT(A)'s order. The ITAT, based on the findings in the main appeal, dismissed the Cross Objections along with the Revenue's appeal. The ITAT upheld the CIT(A)'s decision to delete the penalties imposed under section 271(1)(c) of the IT Act, emphasizing that the assessee had not concealed income or furnished inaccurate particulars, as evidenced by the detailed disclosures made during assessment proceedings.

In conclusion, the ITAT dismissed the Revenue's appeal and the assessee's Cross Objections, affirming the CIT(A)'s decision to delete the penalties imposed under section 271(1)(c) of the IT Act for the assessment year 2006-07. The judgment highlighted the importance of detailed disclosure and interpretation of facts in penalty proceedings separate from assessment proceedings.