TaxTMI 
TaxTMI 
2024 (7) TMI 214
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....erred to confirm the levy of penalty of Rs. One Crore u/s 271(1)(c) on the facts, whereby in Quantum proceedings disallowance of Depreciation u/s 32 of the Income Tax Act, 1961 to the tune of Rs. 2,10,80,516/- and disallowance of Interest u/s 37 of the Income Tax Act, 1961 to the tune of Rs. 90,33,182/- is being made purely on the basis of difference in opinion between assessee and revenue, whereby assessee claim Depreciation and Interest offering the income under the head Business and Profession & revenue rejected such claim assessing the appellant income under the head House Property. 4. That, the levy of penalty of Rs One Crore is bad in law and on facts particularly in a scenario wherein immediately previous assessment year i.e. A.Y. 2015-16, the assessment was done u/s 143(3) wherein return was filed by the assessee making exactly the similar claim of Depreciation and Interest was duly accepted by the revenue and in the assessment year in question such claim was disallowed taking as inconsistent view." 2. The brief facts are such that the assessee-company filed its return of income of AY 2016-17 declaring a loss of Rs. 1,83,40,596/-. The case was selected for scrut....
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....r amenities. Therefore, a show cause notice was issued to the assessee on 16.12.2018. The assessee filed its reply which was perused carefully and after detailed discussion, the AO had disallowed the above expenses during assessment proceedings. 3.2 The assessee filed its reply of penalty notice u/s 271(1)(c) stating that such disallowances have been made merely on the ground of difference in opinion in between the assessee and the revenue, wherein assessee being engaged in the main business activity of renting of immovable property offered the income under the head business and profession but the Ld. AO was of the view that such income should be offered under the head income from house property. However, it is our humble submission that the penalty is such a scenario should not be levied on the following proposition: That, the assessee filed its return of income making exactly the similar claim of depreciation and interest by offering the income under the head business & profession for the assessment year 2015-16 and for such an assessment year, such claim was validly accepted and assessment was done u/s 143(3) of the Act, thus, whether the income earned by the a....
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....tion/ depreciation/interest expenses claimed as business expenses being incidental to the business of the assessee cannot be considered. Since the assessee has not used the assets for business purpose, therefore, the depreciation claimed at Rs. 2,10,80,516/- on the school building and allied facilities cannot be allowed to the assessee. Since the assessee has used borrowed fund for construction and development of school facilities for and on behalf of Devi Ansuiya Sansthan, therefore, the interest claimed by the assessee to the extent of Rs. 90,33,182/- cannot be considered as incidental to the business of the assessee. Therefore, cannot be allowed as business expenses. In view of the above there is no change of opinion. 3.4 In the case of Sambhav Media Limited, the assessee has claimed double deduction of depreciation on business asset while in this case the assessee has not used the assets for business purpose. In the case of Karan Raghav Export (P) Ltd., the AO disallowed the assessee's claim for depreciation on ground the building was used by firm and not by assessee. Penalty on above disallowance was confirmed by the Hon'ble ITAT. In this case the assessee has not....
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....cularly in Para 3.1 of penalty-order the AO has himself stated "whereas the assessee is not carrying any business except letting out the properties". Thus, there is no doubt or dispute regarding engagement of assessee in the business of letting of properties. (ii) The case of assessee for immediate preceding AY 2015-16 was also subjected to scrutiny assessment wherein questionnaire u/s 142(1) was issued and in response the assessee filed copies of all documents to AO in the shape of ITR, ITR Forms, Computation of total Income, Audit Report, etc. (Paper-Book Page 24-84). Upon perusal of those documents, the AO assessed income of assessee under the head "Income from Business or Profession" and also allowed deduction of depreciation and interest expenditure claimed by assessee vide assessment-order dated 04.12.2017. Copy of assessment-order filed at Paper-Book Page 85-89 is scanned and re-produced below: Referring to above assessment-order, Ld. AR pointed out that the AO has categorically mentioned "10 - Nature of Business - Leasing of Property" in the Table on Page-1 and thereafter mentioned "2. The assessee is a Pvt. Ltd. company which is engaged in the business of....
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....t accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars." [Emphasis supplied] 6. Ld. AR went on submitting that there are numerous decisions to support assessee's case, a few decisions are as under: (a) ITAT, Indore in Turning Point Estates Pvt. Ltd. Vs. ACIT, ITA No. 354/Ind/2022, order dated 10.04.2023: "2. The asse....
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....penditure should have been capitalized. The ld. AR has submitted that all the expenses are general in nature and have been incurred for the purpose of running and maintaining the business of assessee company. The expenses are recurring in nature and day to day expenses which are in revenue nature and therefore the assessee has rightly debited the same in the profit and loss account. None of the expenses are related to the project but these expenses are only recurring in nature being payment to employees on account of salaries and wages as well as staff welfare expenses, depreciation on the business assets and other administrative expenses incurred on account of rent, professional fee, repairs and maintenance etc. Therefore, the claim of the assessee was bona fide claim and cannot be held as assessee has committed any default of concealment of income or furnishing inaccurate particulars of income. In support of his contention he has relied upon the judgment of Hon'ble Supreme Court in case of CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 and submitted that the disallowance of claim which is not allowable as per the provisions of law by itself will not amounting to furn....
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....ure and must be treated as capital expenditure, and it is hereby being disallowed and added back to closing stock of the Assessee company. Penalty proceedings u/s 271(1)(c) of the IT Act, 1961 is hereby being initiated separately for assessee furnishing inaccurate particulars of his income. 6. Ld. AO has disallowed the claim of expenses under the head Employees benefit expenses, depreciation, administrative and other expenses. The Ld. AO disallowed these expenses by treating the same as capital in view of the fact that during the year under consideration there was no sale by the assessee. Ld. AO did not doubt the correctness of the expenditure incurred by the assessee under these heads. Therefore, the genuineness and correctness of the expenditure incurred by the assessee are not in dispute or doubted by the Ld. AO but the claim was disallowed only on the ground that during the year under consideration there was no sale and therefore, these expenses must be capitalized instead of showing as revenue expenditure. It is also not in dispute that the very by nature of these expenses reveals that these are not falling under the capital field but all are revenue expendit....
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....eated it as a capital loss, the provisions contained under s. 271(1)(e) of the Act would not attract. In the circumstances, we find no infirmity in the order passed by the Tribunal. 7. In our considered view, the finding recorded by the Tribunal that the assessee did not conceal his income nor furnish the inaccurate particulars, are wholly justified and needs no interference. Merely on the basis of finding recorded by the Tribunal in the original proceedings (quantum proceedings) in which it has been observed that the assessee has concealed certain facts, would not itself attract provisions of s. of the Act. In the absence of any mens rea a finding about concealment of particulars of income or furnishing inaccurate particulars, in our considered view, could not have been arrived at. Accordingly, no case for interference in the order passed by the Tribunal is made out. As a result, the appeal fails and is hereby dismissed. 10. Accordingly, in the facts and circumstances as discussed above as well as following judgment of Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) as well as judgment of Hon'ble Jurisdictional High Court in ....
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....eason stated hereinabove. Thus, we cancel the penalty levied by the CIT(A)." (c) Hon'ble Punjab & Harayana High Court in CIT Vs. Indersons Leather (P) Ltd. (2011) 196 Taxman 103 (P&H) (Mag): "2. The assessee made a claim declaring his income as business income while the AO held the same to be income from house property, which view has been upheld by the Tribunal. The AO also levied penalty u/s 271(1)(c), which was upheld by the Ld. CIT(A). The Tribunal, however, held that the assessee was not guilty of any concealment or giving inaccurate particulars and had raised a debatable issue. In such a situation, penalty was deleted. 3. We have heard learned counsel for the Revenue. 4. In view of the finding of the Tribunal that the assessee had not concealed income nor furnished inaccurate particulars and had merely raised a debatable issue, we are unable to hold that any substantial question of law arises. 5. The appeal is dismissed." (d) ITAT, Indore Bench in Shri Abhishek Jhaveri Vs. ACIT, ITA No. 526/Ind/2010, order dated 28.09.2011: "4. We have gone through the orders of the authorities below and considered rival contentio....
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....lowing submissions: (i) The AO has noted following observations on Page 23-24 of assessment-order, copy at Page 190-191 of Paper-Book: "The brief observations on financials of the company are as under: 5. Interest expenses reimbursed by Devi Ansuiya Vidhya Sansthan to the assessee approx. Rs. 1.67 crore, which is not sufficient consideration to leased out the property. 6. Income received from Devi Ansuiya Vidhya Sansthan during the year under assessment in the form of rent or any other nature Nil. As per lease-deed the assessee was entitled to get Rs. 1,20,000/- lease amount in the year under assessment out of the Investment of Rs. 26 crore by the assessee which is not sufficient consideration to leased out the property." Thus, the assessee was entitled to receive lease-rent of Rs. 1,20,000/- only under lease-agreement yet the assessee recovered reimbursement of interest expense from tenant which is as high as Rs. 1.67 crore. This recovery/reimbursement has been credited to "Interest Expenditure" A/c of assessee and thereafter only net interest expenditure is debited to P&L A/c. This recovery/reimbursement from tenant is more than rent. Ld. AR....
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....trical installation, etc., transpire that the claim made by assessee in the return of income for taxability under the head "Income from business" was also having a sufficient force. In fact, Ld. AR has claimed that the AO in preceding AY 2015- 16 has accepted the very same activity/income of assessee as "Income from business". However, in current AY 2016-17 only, the AO has treated the same activity/income as "Income from House Property" in assessment-order and disallowed the deductions of depreciation and interest. But since the assessee has not filed any appeal against assessment-order, we do not have that issue before us and we do not wish to make any further comment on either side. However, we find that the AO has also imposed penalty u/s 271(1)(c) qua the disallowances of depreciation and interest expenses by treating it as a case of "furnishing inaccurate particulars". This approach of AO is, in our considered view, not a justified approach according to the settled decisions of various judicial forums as narrated earlier. The Hon'ble Supreme Court has categorically held in Reliance Petro Products (P) Ltd. (supra) that unless the assessee has supplied any incorrect or erroneou....
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....or furnishing of inaccurate particulars of income and therefore the penalty u/s 271(1)(c) is not attracted. As discussed in earlier para, we have also found that the present case of assessee is not a fit case for imposition of penalty. Thus, both of the concerns of revenue are devoid of merit and rejected. 11. In view of above discussions and for the reasons stated therein, we arrive at a conclusion that in the present case, the penalty imposed by AO is not sustainable. Therefore, we delete the penalty. The assessee succeeds in this appeal. 12. Resultantly, this appeal is allowed. Order pronounced in open court on 20.06.2024. ============= Document 1 I.T.N.S. 65 INCOME TAX DEPARTMENT 1 Name of the assessee M/s SRK Devbuild Private Limited 2 Address 18/2, Lasudiya Mori, A.B. Road, Indore AAQCS3387P 3 PAN/GIR NO. 4 Ward/Circle/Range 5 Status 6 Assessment Year Circle-5(1), Indore Company 2015-16 7 Whether Resident/Resident but Resident not ordinarily resident/Non- resident 8 Method of accounting 9 Previous year Mercantile 10 Nature of business 11 Date(s) of hearing 12 Date of order 13 Section and ....