2015 (6) TMI 566 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowances on assessee s wind mills, interest amount on account of interest bearing funds utilized in interest free advances and the one made under section 40A(3) @ 20% of the cash payment - CIT(A) deleetd penalty levy - Held that - It is evident that the assessee chose to hand over the windmills back to the vender since the State government had not accorded approval of the ownership transfer. The Revenue sought to tax the very sum of ₹ 2.40 crores received in the following assessment year as capital gains. The tribunal in the subsequent year held that once it has not become owner in the impugned assessment year, no capital gain had arisen to be taxed on account of handing over the windmills back to the owner. All these facts indicate that the assessee has not furnished any inaccurate particulars of income. The present does not seem to be an instance of evasion of taxable income. We reiterate that quantum and penalty proceedings under the Act stand on a different footing and each and every disallowance/addition does not lead to automatic imposition of penalty as held by hon ble apex court in Reliance Petroproducts Ltd. (2010 (3) TMI 80 - SUPREME COURT ). Therefore, we hold that the Assessing Officer had wrongly held assessee s case as that of furnishing of inaccurate particulars of income under section 271(1)(c) of the Act. We also find in the same tune that the Assessing Officer has computed the other disallowances of interest amount and the one under section 40A(3) only on the basis of assessee s accurate particulars already submitted on record in the course of scrutiny. Therefore, the impugned penalty qua these issues has also been rightly deleted. The CIT(A) finding under challenge are upheld. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of depreciation on windmills
2. Disallowance of interest on unsecured loans
3. Disallowance under section 40A(3) for cash payments
4. Imposition of penalty under section 271(1)(c)

Issue 1: Disallowance of Depreciation on Windmills
The assessee claimed depreciation on windmills amounting to Rs. 2.40 crores, but the Assessing Officer disallowed it as the ownership transfer had not occurred. The CIT(A) upheld the disallowance, leading to penalty proceedings under section 271(1)(c). The tribunal found that the assessee had made payments for the windmills, declared power generation income, and obtained insurance, but ownership transfer was pending due to lack of government approval. Citing the Mysore Minerals Ltd. case, the tribunal held that the assessee's claim was bonafide and not inaccurate. The apex court's interpretation of ownership for depreciation supported the assessee's position. The tribunal concluded that no inaccurate particulars were furnished, and the penalty was rightly deleted.

Issue 2: Disallowance of Interest on Unsecured Loans
The Assessing Officer disallowed interest on unsecured loans despite the nexus being proved by the assessee. The CIT(A) reversed a similar disallowance in the previous year. The tribunal found the disallowance contradictory and ruled that penalty for inaccurate particulars could not be levied. Considering the facts and precedents, the tribunal upheld the deletion of penalty for interest disallowance.

Issue 3: Disallowance under Section 40A(3) for Cash Payments
The Assessing Officer disallowed cash payments under section 40A(3), estimating a 20% disallowance rate. The assessee argued that the payment was genuine and covered under rule 6DD. The tribunal held that penalty for inaccurate particulars could not be imposed on estimated disallowances not related to bogus claims. The penalty deletion for this disallowance was upheld.

Issue 4: Imposition of Penalty under Section 271(1)(c)
The Assessing Officer imposed a penalty for furnishing inaccurate particulars of income, including disallowances and capital expenditure. The CIT(A) accepted the assessee's contentions on various issues, leading to the deletion of penalties. The tribunal found that the Assessing Officer wrongly held the case as furnishing inaccurate particulars, and the penalties were rightly deleted. The Revenue's appeal was dismissed, upholding the CIT(A)'s findings.

In conclusion, the tribunal's detailed analysis and interpretation of the legal provisions and precedents led to the dismissal of the Revenue's appeal and the deletion of penalties imposed under section 271(1)(c) for various disallowances.