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Income Tax Appellate Tribunal, DELHI BENCHES: ‘A’, NEW DELHI
Before: SHRI G.D.AGRAWAL, HON’BLE & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This appeal is preferred by the Department against the order dated 18.02.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-XV, New Delhi pertaining to the Assessment Year (A.Y.) 2006-07 on the following ground: “On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the penalty imposed
ITA 3051/Del/2015 A.Y.:2006-07 Dy.CIT, Circle 12(2) vs. M/s Invecon Pvt.Ltd. N.Del by the A.O. u/s 271(1)(c) of the IT Act for Rs.21,82,902/- for furnishing inaccurate particulars of income on account of interest expenses of Rs.64,85,152/-.”
The brief facts of the case are that the assessment in this case was completed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs. ‘Nil’ against returned loss of Rs.64,85,152/- after making a disallowance on account of interest and other expenses. During the course of assessment proceedings the Assessing Officer (A.O. for short) had noticed that interest expenses of Rs.64,85,152/- had been claimed by the assessee company. Borrowed funds had been used by the assessee for payment of advance for purchase of land. The A.O. was of the opinion that purchase of land was a capital asset, and, therefore, the payment of interest should have been capitalised by the assessee as per Proviso to Section 36(1)(iii) of the Act as no business had commenced. The A.O. proceeded to capitalise the entire interest payment and disallowed the claim of interest as revenue expenditure. A.O.’s action was upheld by the First Appellate Authority. A penalty of Rs.21,82,902/- was imposed by the A.O. u/s 271(1)(c) of the Act with respect to interest ITA 3051/Del/2015 A.Y.:2006-07 Dy.CIT, Circle 12(2) vs. M/s Invecon Pvt.Ltd. N.Del disallowance u/s 36(1)(iii) of the Act as aforesaid. The Assessee approached the Ld. First Appellate Authority against the imposition of penalty and the Ld. CIT (Appeals) deleted the penalty. Now the department is before the ITAT challenging the deletion of penalty by Ld. CIT (A).
The Ld. Sr. D.R. submitted that in the instant case the assessee had borrowed funds from its Associate concerns and the same was used as advance for purchase of land which was a capital asset and, therefore, the Proviso to Section 36(1)(iii) of the Act was clearly attracted. The Ld. Sr. D.R. also underlined the fact that assessee’s appeal against the quantum disallowance has also been upheld by Ld. CIT (A). Ld. Sr. D.R. submitted that it is undisputed that interest paid on borrowed funds for purchase of capital asset is to be capitalised which the assessee had not done so and, therefore, it was a clear case of furnishing of inaccurate particulars of income and the Ld.CIT (A) has grossly erred in deleting the penalty.
None was present on behalf of the assessee when the appeal was called out for hearing. However, looking into the facts of the case, we are proceeding to decide the appeal on merits ex parte qua the assessee/respondent.
ITA 3051/Del/2015 A.Y.:2006-07 Dy.CIT, Circle 12(2) vs. M/s Invecon Pvt.Ltd. N.Del 5. We have heard the Ld. Sr. D.R. and have also perused the impugned order. It is seen that the Ld. CIT (A) has discussed the issue at length in paragraph 7.2 and 7.3 of the impugned order. The Ld. CIT (A) has duly considered the submissions of the assessee made before him and had also submitted that the treatment of an expenditure as revenue expenditure or capital expenditure was a legal issue which was debatable and since there was no clarity on the issue, penalty u/s 271(1)(c) of the Act could not be imposed. It was also argued by the assessee before the Ld. CIT (A) that a similar penalty had been dropped by the A.O. in the group cases. Thereafter, the Ld.CIT (A) has placed reliance on the ratio of judgement of Hon’ble Delhi High Court in the case of Devsons (P) Ltd. vs. CIT reported in 322 ITR 483 (Del.) wherein it was held that in case of divergent views the assessee should not be faulted for taking a particular stand and that no penalty could be imposed in such cases. The Ld. CIT (A) has also placed reliance on the ratio of judgement of Hon’ble Delhi High Court in the case of CIT vs. Electrolux Kelvinator Ltd. reported in 2013-TIOL-693-HC.Delhi, wherein it had been held that the issue of capital vs. revenue expenditure was debatable. Although, the Ld. Sr. D.R. had vehemently argued against deletion of penalty,
ITA 3051/Del/2015 A.Y.:2006-07 Dy.CIT, Circle 12(2) vs. M/s Invecon Pvt.Ltd. N.Del she could not point out any legal infirmity in the order of Ld. CIT(A) in as much as he has followed the judgement of Jurisdictional High Court. The Ld. Sr. D.R. has also made a reference to another judgement of Hon’ble Delhi High Court in the case of CIT vs. Zoom Communication (P) Ltd. (2010) 327 ITR 510 in ITA 07/2010 to support her contention that penalty was imposable in the present case. However, we find that a similar issue had arisen before the Hon’ble Apex Court in the case of CIT vs. Reliance Petro Products (P) Ltd. reported in 322 ITR 158 (S.C.) and penalty u/s 271(1)(c) of the Act had been imposed with respect to disallowance u/s 36(1)(iii) of the Act, and the Hon’ble Apex Court had held that making of a claim which was otherwise not allowable under law will not attract penalty u/s 271(1)(c) of the Act. We further note that in its judgement in the case of CIT vs. Zoom Communications P Ltd. (supra), which has been vehemently relied upon by the Ld. Sr. D.R., the Hon’ble Delhi High Court has also discussed the ratio of judgement of Hon’ble Apex Court in the case of Reliance Petro Products P Ltd. (supra) and it is our considered opinion that the judgement of Hon’ble Apex Court in the case of Reliance Petro Products P Ltd. (supra) covers the case of the assessee squarely in its favour.
ITA 3051/Del/2015 A.Y.:2006-07 Dy.CIT, Circle 12(2) vs. M/s Invecon Pvt.Ltd. N.Del Accordingly, we find no reason to interfere with the findings of the Ld.CIT(A) on the issue and we dismiss the ground raised by the Department.
6. In the final result the appeal filed by the Department stands dismissed. Order pronounced in the Open Court on 02nd July, 2018. Sd/- Sd/- (G.D.AGRAWAL) (SUDHANSHU SRIVASTAVA) PRESIDENT JUDICIAL MEMBER Dt. 02nd July, 2018 *manga