2013 (9) TMI 483 - AT - Income Tax

Penalty u/s 271(1)(c) - Unexplained cash credit - Non speaking order - Held that - ld. Commissioner of Income Tax(A) has not passed a speaking order on various issues raised in the appeal before him, we consider it fair and appropriate to set aside the order of Commissioner of Income Tax(A) and restore the matter to his file for deciding the appeal afresh in accordance with law after allowing sufficient opportunity to both the parties. Needless to say that while re-deciding the appeal, the Commissioner of Income Tax(A) shall pass a speaking order keeping in mind and addressing the legal contentions of the assessee and reply of the revenue to the same as mentioned hereinabove as per mandate of provisions of section 250(6) of the Act. - matter remanded back.

Issues Involved:
1. Sustaining of penalty under Section 271(1)(c) of the Income Tax Act.
2. Invocation of Section 271(1)(c) for the second time.
3. Disallowance of depreciation on Cinema Building.
4. Disallowance of interest paid to the bank.
5. Addition of interest for earlier years.

Detailed Analysis:

1. Sustaining of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue in the appeal was whether the penalty of Rs. 8,45,490/- imposed under Section 271(1)(c) of the Income Tax Act was justified. The Commissioner of Income Tax(A) had upheld the penalty, which was originally imposed due to disallowances and additions made during the assessment. The Tribunal noted that the assessee had claimed interest expenditure against a property that was under construction and not generating rental income, and had also claimed interest related to earlier years as a deduction in the year under consideration. The Assessing Officer concluded that these claims were made to evade tax by furnishing inaccurate particulars, thus justifying the penalty.

2. Invocation of Section 271(1)(c) for the Second Time:
The assessee contended that the provisions of Section 271(1)(c) were erroneously invoked a second time. Initially, a penalty was imposed on 30.10.1992, which was partially cancelled by the Commissioner of Income Tax(A) and fully cancelled by the ITAT in 1999. The Tribunal observed that the current penalty pertained to different issues-disallowance of interest on funds for a building under construction and interest related to earlier years-confirmed by the ITAT. Therefore, the second invocation of Section 271(1)(c) was considered valid.

3. Disallowance of Depreciation on Cinema Building:
The Commissioner of Income Tax(A) disallowed the depreciation claimed on the Cinema Building, noting that the assessee had only inherited the rights to run the cinema and did not own the building. The Tribunal upheld this view, stating that the right to screen films did not equate to ownership of the building, thus making the assessee ineligible for depreciation.

4. Disallowance of Interest Paid to the Bank:
The assessee claimed a deduction for interest paid to the bank for a loan taken for constructing a building. The Commissioner of Income Tax(A) disallowed this, noting that the building was still under construction and had not started generating rental income. The Tribunal agreed, emphasizing that the interest was capitalized as part of the building's construction cost and could not be claimed as revenue expenditure.

5. Addition of Interest for Earlier Years:
The assessee also claimed interest pertaining to earlier years as a deduction in the current year. The Commissioner of Income Tax(A) disallowed this claim, stating that the liability to pay interest had not crystallized during the year under consideration and was related to the building under construction. The Tribunal upheld this disallowance, noting the lack of evidence to support the assessee's contention.

Conclusion:
The Tribunal found that the Commissioner of Income Tax(A) had not provided a well-reasoned order addressing the issues raised. The Tribunal set aside the order of the Commissioner of Income Tax(A) and restored the matter to his file for fresh adjudication, with instructions to pass a speaking order addressing all contentions and submissions. The appeal was allowed for statistical purposes.

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