2019 (8) TMI 544 - AT - Income Tax

Penalty u/s 271(1)(c) - additions on account of deduction u/s 80IB(7) and netting off of interest and disallowance of expenses of Jaipur Project - HELD THAT - It is seen that the assessee s claim has been that interest income on short term surplus funds which was kept for running hotel business, rent receipt etc. had direct nexus with hotel business and these are income derived from hotel business. Similarly the expenses related to Jaipur project were also claimed on the ground that it is not a separate business but a part of the assessee s own business. The other project was form of expansion of same business already carried on. Thus, the same were claimed as revenue expenses. Similarly on netting of interest assessee has given a bonafide explanation as how the interest income and interest expenditure had a direct nexus. By making such a claim it cannot be held that assessee has furnished any inaccurate particulars of income or concealed any particulars of income. Simply because disallowances have been made without any adverse material on record but on some legal interpretation, then no penalty can be levied in view of the decision of Hon ble Apex Court in the case of Reliance Petro Products Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT The findings and reasons of the Ld. CIT (A) for deleting the penalty is thus upheld - Decided in favour of assessee.

Summary

Issues:
1. Whether the penalty amounting to ?32,24,281/- was rightly deleted by the Ld. CIT (A).

Analysis:
1. The appeal was filed against the order passed by Ld. CIT (Appeals) in relation to penalty proceedings u/s 271(1)(c) for the assessment year 2009-10. The AO disallowed deductions claimed by the assessee under section 80IB(7) and made additional disallowances related to interest income, rent, and miscellaneous income. The total additions confirmed were ?94,85,972/-. The penalty was levied based on these additions.

2. The Ld. CIT (A) deleted the penalty by considering the appellant's submissions. The appellant argued that the disallowances were based on legal interpretations and did not involve concealment of income. The Ld. CIT (A) agreed that the disallowances did not indicate suppression of material facts. The appellant's explanations regarding interest income, expenses of the Jaipur Project, and netting of interest were found to be reasonable and made in good faith.

3. The appellant claimed that the interest income, rent, and miscellaneous income were directly related to the hotel business, justifying the deductions under section 80IB. Regarding the Jaipur Project expenses, it was argued that they were revenue expenses as the project was an expansion of the existing business. The netting of interest was explained as a cost-saving measure, and the appellant's actions were supported by legal principles and judicial pronouncements.

4. The Tribunal upheld the Ld. CIT (A)'s decision to delete the penalty, citing the Supreme Court's ruling in Reliance Petro Products Pvt. Ltd. case. It was emphasized that if disallowances were made based on legal interpretations without any adverse material on record, no penalty could be imposed. The appellant's explanations were considered genuine and made in good faith, without any intention to conceal income or provide inaccurate particulars.

5. Consequently, the appeal of the revenue was dismissed, and the penalty amount was not upheld. The decision was pronounced in the open court on 8th August 2019.