2014 (9) TMI 47 - HC - Income Tax

Penalty u/s 271(1)(c) Onus discharged by assessee - Claim of deduction on interest on FDR u/s 10A Held that - Assessee rightly contended that the FDRs had been furnished and given as security for obtaining overdraft limits relying upon CIT Vs. Delhi Brass and Metal Works Ltd. 2008 (11) TMI 42 - HIGH COURT DELHI - the defence taken by the assessee that the FDRs on which interest had accrued or was paid, had been obtained for issue of bank guarantee or for taking overdraft facility for the purpose of business the defence was bonafide and the assessee has been able to discharge onus under Explanation to Section 271(1)(c) thus, the order of the Tribunal is upheld Decided against Revenue.

Summary

Issues:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for claiming deduction under Section 10A.
2. Eligibility of interest earned on FDRs for deduction under Section 10A.
3. Application of principle of netting off under Section 80HHC.
4. Bonafide defense of obtaining FDRs for business purposes.

Analysis:

1. The judgment pertains to an appeal by the Revenue challenging the deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The dispute arose when the assessee claimed deduction under Section 10A for a unit known as Minakshi International. The Assessing Officer disallowed the interest earned on Fixed Deposit Receipts (FDRs) for the deduction under Section 10A, resulting in an addition of &8377; 44,36,745. This decision was upheld in the first appeal and by the Income Tax Appellate Tribunal.

2. Various contentions were raised before the tribunal by the respondent assessee, including the argument that the FDRs were provided as security for obtaining overdraft limits. The principle of netting off, similar to Section 80HHC, was also invoked but not accepted by the tribunal. The tribunal relied on the decision in CIT Vs. Delhi Brass and Metal Works Ltd. (2009) 313 ITR 352 (Del.) to decide the legal issue regarding the eligibility of interest on FDRs for deduction under Section 10A.

3. In the impugned order, the tribunal deleted the penalty for concealment after considering the defense put forth by the assessee that the FDRs were obtained for business purposes, such as issuing bank guarantees or securing overdraft facilities. The tribunal found the defense to be bonafide, and the assessee successfully discharged the onus under Explanation to Section 271(1)(c). The consistent stance taken by the assessee from the beginning, both in assessment and penalty proceedings, was noted by the tribunal.

4. The High Court, while dismissing the appeal, observed that the tribunal's decision and the defense presented by the respondent assessee were not perverse. It was concluded that no substantial question of law arose for consideration in the circumstances presented. The court found the order and the defense to be legally sound, leading to the dismissal of the appeal by the Revenue.