2020 (10) TMI 1045 - AT - Income Tax

Tribunal cancels penalties under Income Tax Act, finding assessee's claims based on judicial precedents were not concealment.

The Tribunal ruled in favor of the assessee, holding that the penalties imposed under section 271(1)(c) of the Income Tax Act for disallowances related to ... Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - concealment of particulars of income - bona fide claim based on existing judicial precedent - deductibility of provision for non performing assets vis a vis RBI prudential norms - treatment of deferred revenue expenditure relating to raising of loanTreatment of deferred revenue expenditure relating to raising of loan - penalty under section 271(1)(c) - Whether penalty under section 271(1)(c) is leviable in respect of the disallowance of expenditure claimed as deferred revenue expenditure for raising of loan. - HELD THAT: - The Tribunal in the related quantum proceedings deleted the addition made by the Assessing Officer in respect of the expenditure on raising loan funds after following a co ordinate bench decision which decided the identical issue in favour of the assessee. Since the disallowance was deleted in the quantum proceedings, the consequential penalty imposed under section 271(1)(c) in respect of that disallowance was directed to be deleted. The Tribunal applied the normal principle that penalty cannot survive where the underlying addition is held unsustainable and there was no finding of concealment or furnishing of inaccurate particulars on this issue.Penalty under section 271(1)(c) deleted insofar as it related to the disallowance of expenditure treated as deferred revenue expenditure for raising of loan.Deductibility of provision for non performing assets vis a vis RBI prudential norms - bona fide claim based on existing judicial precedent - penalty under section 271(1)(c) - furnishing inaccurate particulars of income - Whether penalty under section 271(1)(c) is leviable in respect of the disallowance of provision for non performing assets claimed as deductible based on RBI prudential norms and prior Tribunal precedent. - HELD THAT: - The assessee filed the return relying on an ITAT Special Bench decision that allowed provision for NPA as deductible and expressly disclosed the basis for the claim in the return. At the time of filing the return the issue was debatable and supported by favourable precedent; the adverse decision of the Madras High Court and ultimately the Supreme Court (Southern Technologies) came later. The Tribunal applied the settled legal principle that section 271(1)(c) requires concealment or furnishing of inaccurate particulars, and that making a debatable or incorrect claim in the return, when based on an existing judicial precedent and fully disclosed, does not ipso facto attract penalty. Having found that the claim was bona fide and disclosed, and that the issue was arguable at the relevant time, the Tribunal held that penalty could not be sustained.Penalty under section 271(1)(c) deleted insofar as it related to the disallowance of provision for non performing assets claimed on the basis of RBI norms and existing judicial precedent.Final Conclusion: The appeal is allowed: the Tribunal deleted the penalty under section 271(1)(c) both in respect of the disallowance relating to deferred revenue expenditure on raising of loan (since that addition was deleted in quantum) and in respect of the disallowance of provision for non performing assets (the claim being bona fide and based on existing precedent and disclosure). Issues Involved:1. Penalty under section 271(1)(c) of the Income Tax Act.2. Disallowance towards the cost of raising loans treated as Deferred Revenue Expenditure.3. Disallowance of provision for Non-performing assets (NPA).Detailed Analysis:1. Penalty under Section 271(1)(c) of the Income Tax Act:The assessee challenged the penalty levied under section 271(1)(c) concerning two disallowances: the cost of raising loans treated as Deferred Revenue Expenditure and the provision for Non-performing assets. The Tribunal analyzed whether the assessee had furnished inaccurate particulars of income or concealed income, which are prerequisites for imposing a penalty under this section.2. Disallowance towards the Cost of Raising Loans Treated as Deferred Revenue Expenditure:The Tribunal noted that in the quantum proceedings, the disallowance of Rs. 9,34,93,091/- as Deferred Revenue Expenditure was deleted. The Tribunal had previously allowed the deduction of Rs. 18,72,22,842/- incurred on debentures and discounts thereon under section 37(1) of the Act. The Tribunal observed that the issue was covered in favor of the assessee by a co-ordinate bench decision for the Assessment Year 2000-01. Consequently, the penalty on this disallowance was directed to be deleted.3. Disallowance of Provision for Non-performing Assets (NPA):The assessee had claimed a deduction of Rs. 73,46,160/- for the provision of NPA based on the ITAT Special Bench decision in the case of Overseas Sanmar Financial Ltd., which was favorable at the time of filing the return on 31.10.2002. However, the Supreme Court later reversed this position in Southern Technologies Ltd., ruling that such provisions were not allowable under section 36(1)(vii) of the Act. The Tribunal noted that the assessee’s claim was bona fide and based on prevailing judicial precedents and RBI guidelines, thus not amounting to furnishing inaccurate particulars of income. The Tribunal also noted that a similar penalty for the preceding year was deleted, reinforcing the bona fide nature of the claim. Therefore, the penalty on this disallowance was also directed to be deleted.Conclusion:The Tribunal concluded that the assessee had made claims based on bona fide beliefs and existing judicial precedents at the time of filing the return. As such, the claims did not amount to furnishing inaccurate particulars of income or concealment. Consequently, the penalties levied under section 271(1)(c) for both disallowances were deleted, and the appeal of the assessee was allowed.Order Pronounced:The order was pronounced in the open Court on 31st August 2020.