2020 (3) TMI 1225 - AT - Income Tax

Disallowance of professional fees paid by the assessee as well as interest expenditure incurred - assessee not carrying on any business - HELD THAT - The only solitary transaction is demerger of business of the assessee against which the shares have been allotted in the demerged entity. There is neither frequency nor volumes. Therefore, it does not also apply. Thus, we do not find any reason upset the finding of the lower authorities. Hence, we are also of the view that assessee is not carrying on any business during the year and therefore the learned assessing officer as well as the learned CIT A has rightly disallowed professional fees paid by the assessee as well as interest expenditure incurred. In the result, ground number 1, 2 and 3 of the appeal are dismissed. Revenue earned because of renting of space of ATM - Business income - HELD THAT - Lower authorities have concurrently held that appellant is in receipt of rental income from Punjab National Bank for provision of ATM. Except for agreement with the Punjab National Bank, no other details were furnished before the lower authorities as to how the above business can be assessed as a business income. Therefore, we conquer with the findings of the lower authorities and dismiss ground number four of the appeal. Interest income from fixed deposit receipts as income from other sources - HELD THAT - No infirmity in the order of the lower authorities as assessee has merely placed fixed deposits with the banks and it has not been shown that how the earning of the bank‟s deposit receipt interest can be said to be interest income chargeable to tax under the head business income. Thus, ground number five of the appeal is also dismissed. Penalty u/s 271(1)(c) - HELD THAT - Claim of the assessee though ultimately not accepted by the concurrent authorities but it cannot be denied that issue raised is not debatable. Further, when the issue itself is debatable, it cannot result into penalty. Based on our discussion also in the quantum appellate proceedings before us covered in this order, it cannot be denied that claim of the assessee is not debatable. Assessee has furnished all the particulars related to its claim. None of the evidences filed by the assessee was incorrect. It may be an altogether different thing that in spite of those evidences, the issue is decided against the assessee. However, merely because the issue is decided against the assessee confirming the disallowance it cannot result into levy of penalty for furnishing of inaccurate particulars - on the merits, the orders of the lower authorities with respect to the penalty levied on the assessee under section 271 (1) (C) of the act cannot be sustained.

Issues Involved:

1. Disallowance of professional fees.
2. Disallowance of interest expenses.
3. Determination of business activity.
4. Classification of service revenue.
5. Classification of interest income from FDRs.
6. Imposition of penalty under Section 271(1)(c).

Detailed Analysis:

1. Disallowance of Professional Fees:
The assessee claimed a professional fee of ?2,50,00,000 as a business expenditure. The Assessing Officer (AO) disallowed this on the grounds that the assessee did not carry on any business activity during the year. The CIT(A) upheld this disallowance, agreeing that no business activity was conducted. The Tribunal confirmed the AO and CIT(A)'s decision, concluding that the assessee was not engaged in any business activity during the relevant year, thus the professional fees were not allowable under Section 37(1) of the Income Tax Act.

2. Disallowance of Interest Expenses:
The assessee claimed interest expenses of ?2,23,03,31,321, which were disallowed by the AO and upheld by the CIT(A) on the basis that the capital was not borrowed for business purposes. The Tribunal supported this view, concluding that since the assessee was not carrying on any business, the interest expenses were not deductible under Section 36(1)(iii) of the Act.

3. Determination of Business Activity:
The core issue was whether the assessee was engaged in any business activity. The assessee argued that it was involved in the business of providing passive infrastructure and ATM sites and had invested in shares as part of its business activities. However, the Tribunal found that the transactions were part of a strategic business reorganization rather than regular business activities. The Tribunal noted that the assessee's primary business had been demerged and transferred to another company, leaving it without any ongoing business operations. Consequently, the Tribunal upheld the findings of the lower authorities that the assessee was not carrying on any business during the relevant year.

4. Classification of Service Revenue:
The assessee earned ?15,28,000 from renting ATM space, which it classified as business income. The AO and CIT(A) reclassified this as 'Income from House Property.' The Tribunal agreed with the lower authorities, noting the lack of evidence to support the classification as business income and upheld the reclassification.

5. Classification of Interest Income from FDRs:
The assessee reported interest income of ?29,82,000 from fixed deposit receipts (FDRs) as business income. The AO and CIT(A) reclassified this as 'Income from Other Sources.' The Tribunal upheld this reclassification, stating that the interest income from FDRs did not qualify as business income.

6. Imposition of Penalty under Section 271(1)(c):
The AO imposed a penalty of ?1,25,00,00,000 under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) confirmed the penalty. The Tribunal, however, found that the penalty notice did not specify the exact charge (concealment of income or furnishing inaccurate particulars), which made it legally unsustainable. The Tribunal also noted that the assessee had disclosed all material facts and that the issue was debatable. Consequently, the Tribunal deleted the penalty, ruling that the penalty proceedings were invalid due to the lack of specific charges in the notice and the debatable nature of the issue.

Conclusion:
The Tribunal dismissed the appeal related to the disallowance of professional fees, interest expenses, and reclassification of income, confirming that the assessee was not engaged in any business activity during the relevant year. However, it allowed the appeal against the imposition of penalty under Section 271(1)(c), finding procedural lapses in the penalty notice and recognizing the debatable nature of the issues.

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