2018 (6) TMI 1036 - AT - Income Tax

Penalty proceedings u/s 271(1)(C) - disallowance u/s 14A r.w.r. 8D(2)(ii) - Held that - Assessee company has not received any dividend income from these companies which is exempt and therefore there is no application of section 14A - thus when the addition itself is improper, there cannot be any penalty for furnishing inaccurate particulars on such disallowance - Decided in favor of assessee. Disallowance of interest expenditure and letter of credit charges - assessee could not show that borrowings with respect to the assets purchased by the assessee have been capitalized to the cost of assets of till those assets put to use during the year or not - Held that - On reading of the reasons for making a disallowance it is apparent that there is a difference of opinion between the AO as well as the assessee that the money that been utilized for the purpose of acquisition of the assets have been capitalized till the assets have been put to use - assessee has stated that to that, extent assessee had enough reserves and surpluses available and therefore there is no reason for making any addition to the cost of assets purchased by the assessee - thus it cannot be said that assessee has furnished inaccurate particulars of its income - hence we find no infirmity in the order of the CIT(A) in deleting the penalty levied by AO - Decided in favor of assessee.

Summary

Issues:
1. Deletion of penalty on disallowance under section 14A
2. Deletion of penalty on disallowance under section 36(1)(iii)
3. Deletion of penalty on disallowance of processing fee and LC charges under section 36(1)(iii)

Analysis:

Issue 1: Deletion of penalty on disallowance under section 14A
The Revenue appealed against the deletion of penalty by the CIT(A) regarding the disallowance under section 14A. The CIT(A) confirmed the disallowance but deleted the penalty, citing the decision in the case of CIT versus Reliance Petro Products Ltd. The Tribunal upheld the CIT(A)'s decision, stating that when no exempt income was earned by the assessee, the disallowance under section 14A could not stand. As the addition itself was deemed improper, no penalty for furnishing inaccurate particulars was warranted. The Tribunal found no fault in the CIT(A)'s deletion of the penalty in this regard.

Issue 2: Deletion of penalty on disallowance under section 36(1)(iii)
The penalty was levied on disallowance of interest expenditure and LC charges, as the assessee allegedly failed to show that borrowings related to assets purchased were capitalized until the assets were put to use. The CIT(A) deleted the penalty, noting that this was a matter of differing opinions on whether the expenses constituted revenue or capital expenditure. The Tribunal agreed with the CIT(A), emphasizing that no inaccurate particulars were furnished by the assessee regarding this claim. The Tribunal found no error in the CIT(A)'s decision to delete the penalty on disallowance of interest expenditure and LC charges.

Issue 3: Deletion of penalty on disallowance of processing fee and LC charges under section 36(1)(iii)
The penalty was also deleted by the CIT(A) on disallowance of processing fee and LC charges. The Tribunal observed that there was a disagreement between the AO and the assessee on whether the expenses were revenue or capital in nature. As the assessee provided explanations and details during the assessment proceedings, and the disagreement centered on the capitalization of expenses, not inaccurate particulars, the Tribunal upheld the CIT(A)'s decision to delete the penalty in this regard.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of penalties on the disallowances under sections 14A, 36(1)(iii) (interest expenditure), and 36(1)(iii) (processing fee and LC charges). The Tribunal found no grounds to overturn the CIT(A)'s decisions in these matters.