2008 (5) TMI 357 - AT - Income Tax

Summary

Issues Involved:

1. Claim of deduction under Section 36(1)(viii) of the Income Tax Act, 1961.
2. Cancellation of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Claim of Deduction under Section 36(1)(viii):

Facts and Proceedings:
The assessee claimed a deduction under Section 36(1)(viii) amounting to Rs. 155.75 lakhs, which included discounting charges and interest on bank deposits. The Assessing Officer (AO) initiated proceedings under Section 147 and issued a notice under Section 148, ultimately holding that Rs. 553.57 lakhs was not derived from the business of providing long-term finance for housing, thus not eligible for deduction. The AO recalculated the deduction, reducing it to Rs. 84,24,228, resulting in an excess deduction of Rs. 68,66,728 being withdrawn.

Appeal to CIT(A):
The CIT(A) allowed deductions for Pre-EMI and fees but disallowed deductions for discounting charges and interest on bank deposits, citing the Supreme Court decision in CIT vs. Sterling Foods.

Arguments:
The assessee argued that the funds were temporarily deposited, and the interest derived was part of the housing finance business. The Revenue contended that the immediate source of income was not from providing long-term housing finance.

Tribunal's Analysis:
The Tribunal examined the provisions of Section 36(1)(viii) and relevant amendments, emphasizing that the deduction was restricted to profits derived from providing long-term finance for housing. The Tribunal referred to legislative intent and various case laws, concluding that the immediate source of income must be from the specified business activities. The Tribunal upheld the CIT(A)'s decision, disallowing the deduction for discounting charges and interest on deposits, as they were not directly derived from the housing finance business.

Conclusion:
The appeal by the assessee was dismissed, affirming the recalculated deduction under Section 36(1)(viii).

2. Cancellation of Penalty under Section 271(1)(c):

Facts and Proceedings:
The AO levied a penalty of Rs. 4,85,097 under Section 271(1)(c) for alleged concealment of income related to the disallowed deduction under Section 36(1)(viii). The assessee argued that all facts were disclosed, and there was no concealment or furnishing of inaccurate particulars.

Appeal to CIT(A):
The CIT(A) canceled the penalty, noting that the assessee had disclosed all material facts and that the issue involved a difference of opinion regarding the interpretation of the law. The CIT(A) cited various judicial decisions supporting the view that mere disallowance of a claim does not constitute concealment.

Tribunal's Analysis:
The Tribunal reviewed the provisions of Section 271(1)(c) and Explanation 1, emphasizing that the penalty is not automatic and requires a finding of concealment or furnishing of inaccurate particulars. The Tribunal agreed with the CIT(A) that the assessee had provided a plausible explanation and had not concealed income. The Tribunal referenced the Gujarat High Court decision in National Textiles vs. CIT, which held that penalty requires evidence of conscious concealment or furnishing of inaccurate particulars.

Conclusion:
The appeal by the Revenue was dismissed, and the cancellation of the penalty by the CIT(A) was upheld.

Final Judgment:
Both appeals were dismissed, affirming the CIT(A)'s decisions regarding the recalculated deduction under Section 36(1)(viii) and the cancellation of the penalty under Section 271(1)(c).