2023 (7) TMI 608 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowance of deduction u/s 80IA and 80HHC on the profits earned in the various divisions of the assessee-company relating to the income which were found by the Revenue authorities as having no nexus with the business activities of the assessee - HELD THAT - Considering the nature of insurance claim being compensatory there is no profit element involved in the same and the assessee is only compensated for the loss that the insurance company evaluated the assessee to have incurred in such circumstances. Assessee cannot be said to have claimed any deduction on the income in the nature of insurance claim therefore there arises no question of excluding the entire insurance claim for the purpose of claiming deduction under section 80HH/80IA of the Act. On merits therefore we hold that the disallowance of deduction of insurance claim was not in accordance with law and therefore there arises no question for levy of penalty u/s 271(1)(c)on the same. Disallowance of Driver s salary - As assessee has repeatedly contended that it was merely a reimbursement of salary. Again reimbursement of salary received is not in the nature of income and following the reasoning given by us on the issue of insurance claim there arises no question of disallowance of any deduction on the salary paid to the drivers and thus no case for levy of penalty under section 271(1) (c) on the same. Interest income earned on FDs and on loans - There are decisions of Hon ble High Courts holding that it is in the nature of business income more particularly where the FDs have been created for statutory components and regulations. Therefore there is no doubt that the issue of denial of claim of deduction under section 80HH/80IA of the Act on interest on FDs and others is a debatable issue and considering the fact that it is not the case of the Revenue that the assessee has not furnished complete particulars relating to the same or has concealed any particulars of income relating to the same the mere denial of claim of deduction will not tantamount to concealment of income and/or furnishing of inaccurate particulars of income so as to attract levy of penalty under section 271(1)(c) - The proposition of law in this regard has been settled in the case of CIT Vs. Reliance Petroproducts P. Ltd 2010 (3) TMI 80 - SUPREME COURT Decided in favour of assessee.

Summary

Issues:
The judgment involves the levy of penalty under section 271(1)(c) of the Income Tax Act for concealing/furnishing inaccurate particulars of income for the Assessment Year 1997-98.

Summary:

Issue 1: Penalty under section 271(1)(c) of the Act
The appellant challenged the order of the ld. CIT(A) confirming the penalty levied by the AO for concealing/furnishing inaccurate particulars of income under section 271(1)(c) of the Act. The penalty was imposed for disallowance of deductions under sections 80IA and 80HH, resulting in a penalty of Rs. 47,55,054. The deductions were denied in respect of various divisions of the assessee, including interest income, rent income, insurance, and other charges.

Issue 2: Disallowance of deductions
The majority of the disallowed deductions pertained to interest earned on FDs and loans, insurance claims, and drivers' salaries. The appellant contended that the disallowance of deductions on insurance claims and drivers' salaries was not justified as they were compensatory in nature and not income. The Tribunal held that these components were not income and therefore the disallowance was not in accordance with the law.

Issue 3: Netting of interest income against expenses
Regarding interest income earned on FDs and loans, the Tribunal noted that the ITAT had allowed the benefit of netting of interest expenses against such income, a decision upheld by the High Court. The Tribunal held that the denial of deductions on interest income was a debatable issue and did not amount to concealment of income. Therefore, the penalty under section 271(1)(c) was not justified.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to delete the penalty levied in its entirety. The Tribunal held that the appellant had furnished complete particulars of income, and the denial of deductions did not amount to concealment of income or furnishing inaccurate particulars. The judgment was pronounced on 12th July 2023 at Ahmedabad.