2018 (8) TMI 1646 - AT - Income Tax

Addition u/s 14A - interest expenditure incurred for earning of tax free income deserves to be disallowed - Held that - There is no justification or supporting evidence in favour of the calculation of ₹ 8, 44, 577/-. From the submission of the assessee it reveals that it was a sum of ₹ 84, 577/- which has been in principle accepted by the CIT(A). Therefore, we allow this ground of appeal partly and confirm addition to the extent of ₹ 84, 577/-. Appeal of the assessee is accordingly partly allowed. Penalty u/s 271(1)(c) - disallowance of interest out of capitalization and disallowance of interest relating to earning of exempt income - Held that - In earlier part of this order, we have considered quantum appeal of the assessee, wherein we have upheld interest expenses of ₹ 21, 94, 475/- out of ₹ 42, 77, 609/- and ₹ 84, 577/- out of ₹ 26, 83, 618. It will suggest that quantum on which it could be alleged that taxes evaded has been reduced substantially. If we go by the logic of the AO in the impugned order, then penalty would reduce substantially whereas the assessee has already accepted penalty amount of ₹ 24, 14, 500/- by not challenging the order of the ld. CIT(A) in penalty appeal levied in the first round. Considering the stand of the assessee that it has accepted penalty imposed under section 271(1)(c) of the Act, we are of the view that there should not be any second penalty on the same addition. We allow this appeal of the assessee and delete penalty

Issues Involved:
1. Deletion of interest expenses attributable to BOT projects.
2. Allowance of deduction under section 80IA.
3. Deletion of penalty imposed under section 271(1)(c).
4. Disallowance of interest expenditure attributable to eligible undertaking.
5. Calculation of interest expenses for earning tax-free income.
6. Confirmation of penalty under section 271(1)(c).

Detailed Analysis:

1. Deletion of Interest Expenses Attributable to BOT Projects:
The Revenue challenged the deletion of interest expenses of ?42,77,609/- attributable to BOT projects by the CIT(A). However, the Tribunal found that the tax effect on each appeal was below ?20 lakhs as per the CBDT Circular No. 3 of 2018, which prohibits filing appeals where the tax effect is below ?20 lakhs. Consequently, the appeals by the Revenue were dismissed due to low tax effect. The Tribunal noted that if, upon re-verification, the tax effect was found to be more, the Department could approach the Tribunal for recall of the order within the prescribed time period.

2. Allowance of Deduction Under Section 80IA:
The Revenue's appeal challenging the allowance of deduction under section 80IA amounting to ?32,83,582/- by the CIT(A) was also dismissed due to the same reason of low tax effect as per the CBDT Circular No. 3 of 2018.

3. Deletion of Penalty Imposed Under Section 271(1)(c):
The Revenue's appeal against the deletion of penalty imposed under section 271(1)(c) was dismissed due to the low tax effect as per the CBDT Circular No. 3 of 2018.

4. Disallowance of Interest Expenditure Attributable to Eligible Undertaking:
The assessee's appeal against the disallowance of interest expenditure of ?21,94,475/- out of total expenses of ?42,77,609/- was not pressed by the assessee and hence, rejected.

5. Calculation of Interest Expenses for Earning Tax-Free Income:
The assessee contested the calculation of interest expenses at ?8,44,577/-. The CIT(A) had disallowed ?26,83,618/- on the ground that interest-bearing funds were used for earning tax-free income. The CIT(A) accepted the assessee's calculation but erroneously confirmed the disallowance at ?8,44,577/- instead of ?84,577/-. The Tribunal found no justification for the calculation of ?8,44,577/- and confirmed the disallowance to the extent of ?84,577/-.

6. Confirmation of Penalty Under Section 271(1)(c):
The assessee's appeal against the confirmation of penalty of ?26,81,000/- under section 271(1)(c) was allowed. The Tribunal noted that the AO had already imposed a penalty of ?24,14,500/- in the first round, which the assessee accepted. Considering the reduced quantum on which taxes were evaded and the assessee's acceptance of the initial penalty, the Tribunal held that no second penalty should be imposed on the same addition. Thus, the penalty of ?26,81,000/- was deleted.

Conclusion:
The appeals of the Revenue were dismissed due to low tax effect as per CBDT Circular No. 3 of 2018. The assessee's quantum appeal was partly allowed, confirming the disallowance of ?84,577/- for interest expenses. The penalty appeal of the assessee was allowed, deleting the penalty of ?26,81,000/- imposed under section 271(1)(c).

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