2023 (1) TMI 1013 - AT - Income Tax

Penalty u/s 271(1)(c) - Disallowance of interest, Addition u/s 56(2)(viib) and Interest on late deposit of TDS wrongly claimed - HELD THAT - On the perusal of the submissions made by the CIT(A), it is noted that the assessee has failed to place cogent evidence that interest incurred on loan and advances given to its sister concern were incurred for the business purposes. The loan and allowances were given without charging any interest which has resulted in incurring burden on account of advances given to sister concern in violation of Section 36(1)(iii) of the Act. Likewise, before the CIT(A), the assessee has failed to defend inapplicability of Section 56(2)(viib) of the Act. It is not borne out from the records as to why Section 56(2)(viib) is not applicable or the alternative provisions of Section 271(1)(b) is not attracted in the facts of the case. Same is a case in respect of late deposit on TDS. Thus, in the absence of any material on record, it is difficult to conceive plausibility in the action of the assessee. We thus decline to interfere. As per its grounds, the assessee has also alleged that notice issued for imposition of penalty does not specify the nature of default and thus entire penalty proceedings is required to be quashed at the threshold. No penalty notice is available on record. No such objection was raised before lower authorities either. We thus are in no position to express our view on such contentions - Appeal of the assessee is dismissed exparte.

Issues Involved:
1. Disallowance under Section 14A.
2. Disallowance of interest and loan processing fee.
3. Addition under Section 56(2)(viib).
4. Interest on late deposit of TDS.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A:
The CIT(A) concluded that no penalty should be imposed for disallowances under Section 14A of the Act. The total disallowance made under Section 14A was reduced from Rs. 21,33,361/- to Rs. 3,65,546/- by the CIT(A). The Tribunal upheld this decision, noting that the appellant earned dividend income of Rs. 54,84,140/- during the year from investment in shares which was claimed as exempt. The assessing officer made the addition of Rs. 21,33,361/- under Section 14A for expenses relating to exempt income as per Rule 8D. The CIT(A) reduced this disallowance, and no penalty was imposed on this amount.

2. Disallowance of interest and loan processing fee:
The CIT(A) sustained the penalty on the disallowance of interest and loan processing fee. The assessing officer made an addition of Rs. 60,72,432/- on account of the claim of interest on loans and processing fees on loans, which were utilized for loans and advances given to sister concerns and not for business purposes. The CIT(A) increased this disallowance to Rs. 79,08,068/- (Rs. 35,26,028 + Rs. 43,82,040). The Tribunal noted that the appellant failed to place cogent evidence that interest incurred on loans and advances given to its sister concern were for business purposes. The loans were given without charging any interest, resulting in a burden on account of advances given to sister concerns in violation of Section 36(1)(iii) of the Act. The penalty of Rs. 29,40,760/- imposed under Section 271(1)(c) was upheld.

3. Addition under Section 56(2)(viib):
The assessing officer made an addition of Rs. 34,38,000/- for the amount of share premium received over the fair market value of shares. The appellant issued 90,000 equity shares of face value of Rs. 10 each at a premium of Rs. 40 per share during the year. The assessing officer did not accept the value of Rs. 71.04 submitted by the appellant and made the addition under Section 56(2)(viib). The CIT(A) confirmed this addition as the appellant did not submit any evidence in support of its claim for valuation of shares at Rs. 71.04 per share. The Tribunal upheld the penalty, noting that the appellant failed to defend the inapplicability of Section 56(2)(viib) of the Act.

4. Interest on late deposit of TDS:
The appellant paid interest of Rs. 6,574/- on late deposit of TDS, which was claimed as an expense. The Assessing Officer disallowed this expense as it is not allowable. No appeal was filed by the appellant on this issue. The Tribunal noted that the appellant failed to defend the inapplicability of the penalty provisions for the late deposit of TDS.

General Observations:
The Tribunal noted that the appellant did not appear for the hearing and had not appeared on any previous occasions. The appellant's conduct was deemed lackadaisical, and the matter was proceeded ex-parte. The Tribunal also noted that no penalty notice was available on record, and no such objection was raised before the lower authorities. Consequently, the Tribunal dismissed the appeal of the assessee ex-parte.

Conclusion:
The appeal of the appellant was partly allowed by the CIT(A) and dismissed ex-parte by the Tribunal. The penalty under Section 271(1)(c) was upheld for the disallowance of interest and loan processing fees, and the addition under Section 56(2)(viib), while no penalty was imposed for the disallowance under Section 14A. The Tribunal found no merit in the appellant's claims and upheld the CIT(A)'s decision to impose penalties for furnishing inaccurate particulars of income. The final order was pronounced on 23/01/2023.

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