ACIT, CIRCLE-2(2),, HYDERABAD vs. M/S KAKINADA SEZ PRIVATE LIMITED,, R.R.DIST

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “A”, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER (Through Virtual Hearing) Assessment Year:2008-09 The Income Tax Officer, Vs. M/s. Kakinada SEZ Pvt. Ward-2(1), Ltd., Hyderabad. Shamshabad. PAN: AACCK 5670 R (Appellant) (Respondent) Assessee by: Shri Ronak Doshi Revenue by: Shri Pathlavat Peerya, DR Date of hearing: 06/10/2020 Date of pronouncement: 08/10/2020 ORDER PER A. MOHAN ALANKAMONY, AM.:

This appeal is filed by the Revenue against the order of the ld. CIT (A)-III, Hyderabad in appeal No. 0105/ACIT 2(2)/CIT(A)-III/2012-13, dated 26/06/2013 passed U/s. 271(1)(c) r.w.s 250(6) of the Act for the AY: 2008-09.

60 ITR 52 (SC), CIT vs. Sri Ram Honda Power Equipment reported in 289 ITR 501 (Delhi), J.F. Laboratories Ltd vs. Income Tax Officer reported in 96 ITD 448 (Mumbai). However, the Ld. AO was of the view that since the assessee had taken loan from the bank for acquisition of land and development of the project by virtue of section 57(iii) of the Act, the interest earned from the unutilized loan kept as fixed deposit cannot be allowed to be netted off and further it has to be brought to tax under the head “income from other source”. While holding so, the Ld. AO relied on the decision of the Hon’ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd vs. CIT (1997) 227 ITR 172, Kedar Narain Singh vs. CIT reported in 6 ITR 167 and the decision of the Indore Bench of the Tribunal in the case of Manideep Engg. & Packaging Industries (P) Ltd vs. Dy. CIT reported in 77 ITD 307. Accordingly, the ld. AO assessed the income of the assessee under the head “income from other source” for Rs. 6,09,35,544/- and further initiated penalty proceedings U/s. 271(1)(c) of the Act. Thereafter the Ld. AO held that the assessee had concealed the particulars of income because the interest earned from the fixed deposit was not included as income under the head “income from other source” in the return of income and levied minimum penalty of Rs. 2,07,11,990/-.

“4.4. I have seen carefully the facts and evidence. Identical issue has been decided in the case of the appellant by the Hon’ble CIT(A)-III vide 2(2)/CIT(A)-III/2011-12 dated 22nd January, 2013. The operative part of that judgment is quoted below:- “4.13. I have also gone through the case law referred to by the appellant and I find merit in the contention of the appellant that the issue is definitely debatable. This is evident from the decision of the Hon’ble Delhi High court in the case of NTPC Sail Power Company 25 Taxmann 401 where it was held that interest on money received as share capital if temporary placed in a fixed deposit does not alter the nature of the amount as this amount is inextricably linked with the setting up of the plant and such interest income cannot be treated as income from other sources. Similarly the Hon’ble Supreme Court in the case of CIT vs. Bokaro Steel Limited 236 ITR 315 (SC) has endorsed a similar view stating that if interest is earned on funds primarily brought for infusion into the business then such interest income cannot be classified as income from other sources. Even if the income is earned in a period prior to the commencement of business it had to be in the nature of a capital receipt and was required to be set off against preoperative expenses. There are many other decisions of various Courts and Tribunals which support the aforementioned view while there is also many a decision supporting the contrary law. 4.14. The aforesaid discussion clearly points out that the issue in hand is debatable. 4.15. Given the above facts and circumstances, there is no doubt about the fact that penalty in this case is not impossible. Accordingly, the same is ordered to be cancelled.” 4.5. Since the facts are identical in the current year also, following the principle of stare decisis, I too hold that the issue at hand is debatable and no information had ever been cancelled by the appellant. Therefore, penalty u/s. 271(1)(c) cannot be levied and the same is ordered to be cancelled.”

“A glance of provision of section 271(1)(c ) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. [Para 7] Therefore, it must be shown that the conditions under section 271(1)(c ) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. [Para 8] The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was 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). A 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. Such claim made in the return cannot amount to the inaccurate particulars. [Para 9]

The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. [Para 10] Therefore, the appeal filed by the revenue had no merits and was to be dismissed.

Pronounced in the open Court on 08th October, 2020.