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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
This appeal by the Assessee is arising out of the order of CIT(A)-17 Mumbai, in appeal No. CIT(A)-17/IT-44/2010-11, dated 29-11-2011. The Assessment was framed by ITO Ward 8(2)(4), Mumbai for the A.Y. 2007- 08-11 vide order dated 24-12-2009 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’). The penalty under dispute was levied by ITO Ward 8(2)(4) vide order dated 25-06-2010 under section 271(1)(c) of the Act.
The only issue in this appeal of assessee is against the order of CIT(A) confirming the levy of penalty under section 271(1)(c) of the Act on denial of deduction under section 10B of the act on interest income amounting to Rs. 7,27,926/-.
Nutech Colors Private Limited (A.Y:2007-08) 3. Briefly stated facts are that the AO while framing assessment under section 143(3) of the Act dated 24-12-2009 for the AY 2007-08 reduced the claim of deduction under section 10B of the Act at Rs. 7,27,926/- on interest earned on the advance/loan amounts. The assessee accepted the assessment of interest income as taxable income and no appeal was filed against assessment. The AO initiated the penalty proceedings under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income and levied the penalty. Aggrieved assessee preferred the appeal before CIT(A), who also confirmed the action of the AO. Aggrieved, now assessee is in second appeal before Tribunal
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has claimed deduction under section 10B of the act on interest amount of loans and advances and AO brought to tax the excess claim of deduction of Rs. 7,26,926/- under the head income from other sources. The assessee claimed that admissibility of deduction U/s. 10B on the component of interest receipt was from funds advanced that were used in the business Since the funds were temporarily available out of business, the same were deployed as a matter of prudence in order not to keep the funds idle. It was brought to notice of the AO that assessee did not have surplus funds that were deployed to earn interest and thus the funds were business funds only and income there from constituted profits and gains of business. It was also explained to the AO that, the assessee paid interest of Rs. 140,526/- on funds borrowed and this was allowed by the AO as business expenditure. To reduce this interest burden, the assessee deployed funds available on a temporary basis for fruitful purposes rather than keeping the funds idle.
Nutech Colors Private Limited (A.Y:2007-08) 5. We find from the facts of the case that and order of coordinate bench exactly on identical circumstance, the Tribunal in the case of M/s Siemens Information Systems Ltd. Vs. ACIT in for AY 2002-03 vide order dated 18-05-2012 has deleted the penalty vide Para 3 which reads as under: -
“3. After considering the rival submissions and perusing the relevant material on record, it is observed that the bedrock for imposition of penalty u/s.271(1)(c) is not allowing of deduction u/s. 10A/10B on the interest income earned from deposits and from staff loans. The ld. AR has placed on record copies of certain orders passed by the Tribunal including the case of J.P. Morgan Services India P. Ltd. (2009)-TIOL-718-ITAT (Mum) and Living Stones Jewellery P. Ltd. vs. DCIT (2009)- TIOL-526-ITAT (Mum) in which the assessee was granted deduction u/s.10A on the interest income earned on deposits. Even though the assessee remained unsuccessful before the Tribunal on the question of inclusion of such interest income in the eligible profit for allowing deduction u/s. 10A/10B, still it cannot be said that the assessee could not have entertained a bona fide view about the eligibility of such interest income for the purposes of deduction under two provisions in the light of the above two orders passed by the Mumbai Benches of the Tribunal. Merely because the assessee's claim has not been accepted in quantum proceedings, cannot per se be a reason to impose or confirm penalty u/s. 271(1)(c). Where a possible view is canvassed by the assessee on the eligibility of a particular amount as qualifying for deduction,
Nutech Colors Private Limited (A.Y:2007-08) the negation of such a view cannot be held as concealment of income or furnishing of inaccurate particulars of income. The Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC) has held that mere making of a claim, which is not sustainable in law, by itself, will not attract penalty under this section. When the assessee furnished all the particulars in the return, which were not found to be inaccurate, the Hon'ble Supreme Court has held that no penalty could have been imposed in this regard. The facts of the instant case bear close resemblance inasmuch as the assessee made a claim u/s.10A/10B on the interest income by disclosing all the necessary particulars of income in this regard. Further, the question of eligibility or otherwise of such interest income as not qualifying for deduction u/s.10A/10B is also not free from doubt. In that view of the matter, it cannot be said that the assessee was caught within the mischief of sec. 271(1)(c) in respect of non-granting of deduction u/s.10A/10B on the interest income.”
Respectfully following the same, we also delete the penalty. The 6. appeal of assessee is allowed.
In the result, the appeal of assessee is allowed.