NIRMAL INFRASTRUCTURE PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE 3(1), MUMBAI

The learned counsel of the assessee has challenged the confirmation of the penalty on both the grounds - lack of the specification of charge for the levy of penalty and also on merits of levy of penalty.

Brief facts of the case leading to the levy of penalty are that assessee is the builder and developer. In the assessment completed under section 153A of the Act, the assessing officer found that the assessee has adjusted the interest earned on fixed deposit with the interest paid and has adjusted the resultant amount in the work in progress. The assessing officer was of the opinion that in view of the honourable apex court decision in the case of Tuticorin Alkali & Chemicals 227 ITR 172 (SC), the interest on fixed deposit was to be shown as income from other sources. The assessee agreed for the same. The assessing officer also initiated penalty for furnishing of inaccurate particulars of income. In the notice issued for the initiation of penalty the relevant limb of the specification of charge was not identified.

In the penalty order the assessing officer levied the penalty finally without identifying the charge, he mentioned that penalty has been levied for concealment of income or furnishing of inaccurate particulars of income.

Assessee challenged the aforesaid order before the learned CIT-A. Learned CIT-A confirmed the action of the assessing officer.

Against above order assessee is in appeal before us.

We have heard both the counsel and perused the records. Learned counsel of the assessee submitted that assessing officer has initiated the penalty for furnishing of inaccurate particulars of income. He submitted that in the notice issued for the penalty the relevant limb was not struck off. He further submitted that in the penalty order again the assessing officer is not sure about the charge as he has mentioned that penalty has been levied for furnishing of inaccurate particulars of income or concealment of income. Hence learned counsel of the assessee submitted that the penalty levied is bad in law and cannot be sustained. As regards merits of the levy of penalty the learned counsel of the assessee submitted that assessee has made a claim. If the same is not accepted it cannot be taken as reason to initiate penalty proceedings. He submitted that assessee’s accounting of interest is not ex facie

We have carefully considered the submissions and perused the records. Upon careful consideration we note that the issue in dispute in the Income Tax Appeal in these cases was the treatment of interest on fixed deposit. The assessee has adjusted the interest earned with the interest expenditure and thereafter adjusted the resultant figure with the work in progress. This treatment in the accounts was disputed by the Assessing Officer. He was of the opinion that interest on fixed deposits should be treated as income from other sources. In this regard the Assessing Officer referred to the decision of Hon'ble Apex Court in the case of Tuticorin Alkali.

On the other hand it is the plea of the assessee that assessee’s accounting is not exercise ex-facie bad. It is claimed that assessee’s treatment draws support from the decision of Hon'ble Apex Court in the case of Karnal Co-op. Sugar Mills (supra). Hence, it is the plea of the assessee that assessee’s conduct was bonafide. In these circumstances, in our considered opinion the assessee’s accounting was not totally unacceptable the same cannot lead to levy of penalty u/s. 271(1)(c). In this regard, Hon'ble Apex Court decision in the case of Reliance Petroproducts (supra) supports the case of the assessee. In this case it was held by Hon'ble Apex Court that if the Assessing Officer

Furthermore, we note that assessee has agreed for the said treatment in the assessment proceedings. It is also the plea of the assessee that the said accounting treatment can be said to be an inadvertent error. In these circumstances also assessee deserves to succeed on the touchstone of Hon'ble Apex court decision in the case of Price Waterhouse Cooper (supra).

Another limb of the assessee’s plea is that Assessing Officer has mentioned that assessee has furnished inaccurate particulars of income in the assessment order. While in the penalty order Assessing Officer is not sure of the charge in as much as he has concluded that penalty has been levied for concealment of income or furnishing of inaccurate particular of income. In this view of the matter the assessee deserves to succeed on the touchstone of Hon'ble Jurisdictional High Court in the case of Samson Perinchery (supra). In our considered opinion learned CIT has erred in distinguishing this decision from the Jurisdictional High Court, on the facts of this case. In the background of aforesaid discussion and precedent we set aside the orders of the authorities below and delete the penalty.

In the result, these appeals by the assessee stand allowed. Order has been pronounced in the Court on 16.5.2019.