2019 (9) TMI 1236 - AT - Income Tax

Penalty u/s 271(1)(c) - exemption u/s 10(20A) - HELD THAT - In a number of cases that in the absence of non-recording of satisfaction note by the AO during the course of assessment proceedings regarding concealment or furnishing of inaccurate particulars of income, penalty u/s 271(1)(c) is not impossible. It can be seen from the records that since Assessment Year 1996-97 (first year for which Income-Tax return was filed by the assessee company) exemption u/s 10(20A) was being claimed which was denied at the level of Assessing Officer and CIT(A). Against this decision, the assessee company has filed second appeals before the ITAT, right from Assessment Year 1996-97 onwards which are pending for adjudication before the ITAT. Since it is a matter of legal opinion whether exemption u/s 10(20A) is allowable or not, it cannot be said that the assessee company concealed its income or furnishing inaccurate particulars of its income. Hence Penalty u/s 271(1)(c) was not leviable. AR also pointed out that there is no satisfaction note regarding concealment or furnishing of inaccurate particulars of income was recorded by the Assessing Officer during the course of assessment proceedings. The question whether exemption u/s 10(20A) is allowable or not, is a question of law which is pending for adjudication before the ITAT. This issue, thus is debatable on which two opinions are possible and hence penalty u/s 271(1)(c) is not leviable. Under the penalty u/s 271(1)(c) is required to be imposed with reference to tax sought to be evaded. In the order imposing penalty, this requirement of law has not been fulfilled in as much as tax sought to be evaded has not been worked out. There is no tax which is sought to be evaded. The assessee company had paid full tax on income declared in the return without taking into consideration its claim for exemption u/s 10(20A). These facts were properly adjudicated by the CIT(A) and thus, there is no need to interfere with the findings of the CIT(A). - Decided against revenue Revision u/s 263 - assessment of income under head other sources and not business income - HELD THAT - From the perusal of the said order it can be seen that in the earlier years, the order u/s 263 has been sustained by the Tribunal on the similar issue. In the present year as well the assessee has not demonstrate before the AO whether actual business was commenced or not and at the same time whether investment has inextricable link in respect of the project and not that of pre-operative expenses. As per the Hon ble Delhi High Court decision in case of Indian Vaccination Corporation Ltd. 2014 (3) TMI 299 - DELHI HIGH COURT when there is no inextricable link between investment and project, interest income on said investment could not be permitted to be adjusted against pre-operative expenses in respect of said project. The case laws referred by the assessee are not applicable in the present case as the provisions under Section 263 are properly invoked by the Commissioner of Income Tax. Therefore, the order under Section 263 of the Act passed by the Commissioner of Income Tax is just and proper. There are no two views expressed but there is a failure on part of the Assessing Officer because of which there is escapement of income.

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2000-01 and 2001-02.
2. Setting aside the order passed by the Assessing Officer under Section 143(3) for A.Y. 2003-04.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) for A.Y. 2000-01 and 2001-02:

The Revenue challenged the CIT(A)'s decision to delete penalties under Section 271(1)(c) of the IT Act, 1961, amounting to ?22.86 crores and ?39.15 crores for A.Y. 2000-01 and 2001-02, respectively. The grounds for the challenge included the assertion that the assessee company made a false claim of deduction under Section 10(20A), knowing it was not an "Authority" constituted under any law but merely a company registered under the Companies Act. The Revenue argued that the assessee showed inaccurate particulars by claiming disallowed expenses and that these inaccuracies would have led to income escaping assessment if not detected.

The Tribunal noted that since A.Y. 1996-97, the assessee had been claiming exemption under Section 10(20A), which had been consistently denied by the Assessing Officer and CIT(A). The Tribunal highlighted that the matter of whether the exemption under Section 10(20A) is allowable is a legal question pending adjudication before the ITAT. It was held that the absence of a satisfaction note by the Assessing Officer regarding concealment or furnishing inaccurate particulars during the assessment proceedings meant that penalty under Section 271(1)(c) was not imposable. The Tribunal emphasized that the penalty should be imposed with reference to the tax sought to be evaded, which was not demonstrated in this case. Therefore, the appeals for A.Y. 2000-01 and 2001-02 were dismissed.

2. Setting Aside the Order Passed by the Assessing Officer under Section 143(3) for A.Y. 2003-04:

The assessee was assessed at a total loss of ?14,64,85,780/- for A.Y. 2003-04. The CIT-IV, Delhi, issued a notice under Section 263, stating that the assessment was erroneous due to underassessment of income to the extent of ?603.18 Lakhs. The CIT held that the Assessing Officer failed to bring to tax income from other sources, including interest on refunds and miscellaneous income, which should be assessed under Section 56.

The Tribunal condoned the delay in filing the appeal by the assessee and proceeded to examine the merits. The assessee argued that the income related to the project and should be adjusted against the project cost, citing various judicial precedents. However, the Tribunal noted that the assessee had not demonstrated whether the actual business had commenced or whether the investment had an inextricable link to the project. The Tribunal referred to the Delhi High Court's decision in the case of Indian Vaccination Corporation Ltd., which stated that interest income on investments without an inextricable link to the project could not be adjusted against pre-operative expenses.

The Tribunal concluded that the CIT's invocation of Section 263 was justified as the Assessing Officer had failed to properly assess the income, leading to its escapement. The Tribunal upheld the CIT's order under Section 263, dismissing the assessee's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeals for A.Y. 2000-01 and 2001-02, upholding the deletion of penalties under Section 271(1)(c). The Tribunal also dismissed the assessee's appeal for A.Y. 2003-04, affirming the CIT's order under Section 263, which set aside the Assessing Officer's assessment due to underassessment of income. The Tribunal emphasized the importance of proper assessment and the necessity of demonstrating a clear link between investments and project costs for tax adjustments.