2019 (3) TMI 1293 - AT - Income Tax

Levy of penalty u/s. 271(c) - capitalization of interest u/s. 36(1)(iii) - difference in Revenue receipt as per TDS certificate and P & L a/c - HELD THAT - In respect of capitalization of interest, we observe that assessee has obtained loan from the State Bank of India and Nutan Nagrik Sahakari Bank Ltd. which has been utilized for the purpose of building furniture and equipment of Kaizen Hospital inaugurated on 27-11-2011. The assessee explained during the course of assessment proceedings that portion of interest paid was capitalized as there was no time difference requiring the same as to acquisition and put to use. In this regard, it is observed that the small amount of bank loan of ₹ 9,70,966/- has been used for three components i.e. building furniture and equipment at different stages therefore, the assesssee has claimed such part of expenses as revenue expenditure instead of claiming depreciation on capitalization of such expenses. In the light of the above facts, we do not find it appropriate to consider that there is a case of furnishing inaccurate particular of income. Therefore, we are of the view it is not justified to levy penalty. Revenue receipt received as per TDS certificate which was not credited in the P & L a/c, we observe that the assessee has failed to substantiate with any material that why the impugned receipt was not disclosed in its income. Therefore, we consider that the assessee has furnished inaccurate particulars of income to theis extent and we justify the action of the assessing officer of levying the penalty u/s. 271(1)(c). Accordingly, we direct the assessing officer to restrict the penalty as supra, therefore, the appeal of the assessee is partly allowed.

Summary

Issues:
1. Levy of penalty under section 271(c) of the Income Tax Act, 1961 for the assessment year 2012-13.

Analysis:
The appeal before the Appellate Tribunal ITAT Ahmedabad pertained to the levy of a penalty of ?3,27,468 under section 271(c) of the Income Tax Act, 1961. The assessing officer had made disallowances during the assessment under section 143(3) of the Act, including capitalization of interest and addition on account of income. The assessing officer capitalized interest amounting to ?9,70,966, disallowing a portion and adding the rest to the total income of the assessee. Additionally, the assessing officer noted uncredited income received from various parties, totaling ?1,07,359, which was added to the total income. Penalty proceedings were initiated under section 271(1)(c) for furnishing inaccurate particulars of income. The assessee argued that there was no concealment of income, citing the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products. However, the assessing officer was not convinced and levied the penalty.

The CIT(A) confirmed the penalty levied by the assessing officer. Upon hearing the contentions and examining the records, the Appellate Tribunal observed that the assessee had utilized a bank loan for building furniture and equipment of a hospital. The Tribunal found that the assessee had properly explained the capitalization of interest and deemed it as revenue expenditure. Therefore, the Tribunal concluded that there was no case of furnishing inaccurate particulars of income regarding the interest amount. However, concerning the uncredited income of ?1,07,359, the Tribunal held that the assessee failed to provide sufficient explanation for not disclosing it in the income. Consequently, the Tribunal upheld the penalty on this amount. The Tribunal directed the assessing officer to restrict the penalty accordingly, partially allowing the appeal of the assessee.

In conclusion, the Appellate Tribunal ITAT Ahmedabad partially allowed the appeal, ruling in favor of the assessee regarding the capitalization of interest but upholding the penalty for the uncredited income. The judgment was pronounced on 31-01-2019.