2023 (12) TMI 774 - AT - Income Tax

Penalty u/s 271(1)(c) - Addition of process loss and profit on sale of land/flats considered as business income instead of capital gain as claimed by the assessee in its Return of Income - HELD THAT - Regarding the first issue of penalty namely process loss of Rs. 32,14,385/- the above disallowance is based on estimate basis. In assessee s own case for the Assessment Year 2013-14 2021 (9) TMI 1526 - ITAT AHMEDABAD deleted the penalty levied in respect of process loss charges as held that such claim in the return of income cannot amount to inaccurate particulars of income - mere making of the claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. In the light of the above facts and findings, we consider that only on the basis of not accepting the claim made by the assessee, the levy of penalty u/s. 271(1)(c) is not appropriate. Treatment of profit on sale of land/flats as business income instead of capital gains - Because of change of head of income, no penalty u/s. 271(1)(c) of the Act can be levied, the claim made by the assessee with necessary evidences, thus the assessee has not furnished inaccurate particulars of income. There is no finding by the AO that the details furnished by the assessee in the Return of Income found to be incorrect or erroneous or false, whereby invoking penalty u/s. 271(1)(c) of the Act. Mere making of a claim, which is not sustainable in law by itself will not amount to furnishing inaccurate particulars of income by the assessee. Therefore following the case of Reliance Petroproducts Pvt. Ltd 2010 (3) TMI 80 - SUPREME COURT the levy of penalty on this issue is liable to be deleted. Thus we do not find any merits in the grounds raised by the Revenue. Disallowance u/s. 40A(2)(b) - assessee company had paid interest on Unsecured loans and advances taken from Directors and relatives - CIT(A) deleted addition as no loss of Revenue is caused by payment of interest @ 15% p.a. on loans and advances paid to the Chairman and Director of the company - assessee explained the Chairman and Director of the company provided personal guarantee to various banks for the loans borrowed by the assessee company, for which they did not charge any guarantee commission and loans borrowed from them are also not secured against any assets of the company, therefore both the persons bear the risk for the amounts lended to the assessee company - HELD THAT - The assessee produced before us copy of the Returns filed by the Chairman and Director of the company disclosing the above interest paid @ 18% in their respective Returns of Income and paid taxes. Considering the fact, the above two parties were stood for the personal guarantee of the loans availed by the assessee company which is a business exigency. It is further seen that for the present Assessment Year 2015-16 the assessee claimed set off of brought forward losses of Rs. 13.75 crores and claiming Nil assessed income. Whereas the two other persons offered the interest income in their respective hands. Therefore there is Revenue neutrality and question of disallowance does not required. For the above reasons, the addition made by the Assessing Officer is hereby deleted. Decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Penalty under section 271(1)(c) for Assessment Year 2012-13.
3. Penalty under section 271(1)(c) for Assessment Year 2015-16.
4. Disallowance of interest under section 40A(2)(b) for Assessment Year 2016-17.

Summary:

1. Delay in Filing the Appeal:
The appeal filed by the Revenue in ITA No. 277/Ahd/2020 faced a 53-day delay due to the COVID-19 pandemic. Following the Supreme Court's judgment dated 23.03.2020, the time limit for filing appeals was extended from 15.03.2020, making the appeal timely and acceptable.

2. Penalty under Section 271(1)(c) for Assessment Year 2012-13:
The assessee, a Private Limited Company, had its return of income partially disallowed, leading to a penalty of Rs. 1,77,99,323/- for furnishing inaccurate particulars of income. The Commissioner of Income Tax (Appeals) deleted the penalty, stating that the assessee had provided all particulars and that the disallowance did not justify the penalty. The Tribunal upheld this decision, emphasizing that mere disallowance of a claim does not amount to furnishing inaccurate particulars. The Tribunal referenced several case laws, including Reliance Petroproducts Pvt. Ltd., to support the deletion of the penalty.

3. Penalty under Section 271(1)(c) for Assessment Year 2015-16:
The only issue was the disallowance of process loss of Rs. 4,62,359/-, leading to a penalty of Rs. 1,42,868/-. The Tribunal, referencing its earlier decision in ITA No. 1189/Ahd/2019, deleted the penalty, stating that the disallowance was based on an estimate and did not justify the penalty under section 271(1)(c).

4. Disallowance of Interest under Section 40A(2)(b) for Assessment Year 2016-17:
The assessee paid higher interest rates (18%) to its Chairman and Director compared to others (12%), leading to a disallowance of Rs. 75,00,138/-. The Tribunal found that the higher interest was justified due to personal guarantees provided by the Chairman and Director for the company's loans, which is a normal business practice. The Tribunal noted that similar disallowances in previous years were deleted by the CIT(A) and that the interest paid was disclosed and taxed in the recipients' returns, making the disallowance unnecessary. The Tribunal deleted the addition, emphasizing revenue neutrality and business exigency.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeals, deleting the penalties and disallowances in question.