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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-I’ : NEW DELHI
Before: SHRI P.K. BANSAL
O R D E R This appeal has been filed by the assessee against the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 (hereinafter ‘the Act’) which has been confirmed by the CIT (A) amounting to Rs.5,50,000/-.
The brief facts of the case are that the Assessing Officer, on the perusal of the profit & loss account annexed with the return of income, noted that the assessee has not earned any business income during the year but the assessee company has received an interest income amounting to Rs.9,12,200/- which has been set off in the interest expenditure incurred for development of the land and included in the project-in-progress. The AO, after relying on the decision of the Hon’ble Supreme Court in the case of Tuticorin Alkalies Chemical & Fertilizer Ltd. – 227 ITR 172, took a view that the said interest income has to be assessed under the head ‘Income from other sources’. The expenses incurred are not to be allowed as the assessee has not commenced its business. The assessee went in appeal against assessing of the said income under the head ‘Income from other sources’. The CIT (A) dismissed the appeal of the assessee. The assessee did not file any further appeal.
The AO thereupon issued show-cause notice to the assessee why penalty u/s 271(1)(c) of the Act may not be imposed on the assessee. The AO ultimately levied the penalty u/s 271(1)(c) by observing that the assessee made an incorrect claim and if the assessment has not been made under scrutiny, the income has escaped the assessment. He took the view that it is a case where the assessee has furnished inaccurate particulars of its income.
I heard the rival submissions and carefully considered the submissions along with the orders of the tax authorities below. I do agree with the ld. AR that the assessment proceedings as well as the penalty proceedings both are different proceedings. If the assessee has not filed the appeal against the order of the CIT (A), it cannot be construed that the assessee cannot take the plea on merits about the quantum addition during the course of penalty proceedings.
The case of the assessee is that it has already set up the business as the assessee has purchased the land. The assessee has, in this regard, relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. Whirlpool of India Ltd. – 318 ITR 347. Hon’ble Delhi High Court in that decision has clearly laid down that setting up of business is different from commencement of the business and any expenditure incurred after set up of the business has to be a revenue expenditure.
There is no dispute in this regard that the assessee is involved in construction business and, therefore, the moment the assessee bought the land, it can be said that the business has already set up. The assessee while incurring the development expenses reduced the interest received from the FDR from the development expenses / project-in-progress, thereby he reduced construction and development/project-in-progress cost as per the accounting norms followed by the assessee. The FDRs were pledged with the bank as a bank guarantee for the construction and the development work. The FDRs were duly shown in the balance sheet, the particulars shown in the balance sheet cannot be regarded to be incorrect whatever the assessee has agitated in the balance sheet, the said amount has the same nature. In my view, the case of the assessee is duly covered by the decision of Hon’ble Supreme Court in the case CIT vs. Reliance Petroproducts Limited - 322 ITR 158, to which the undersigned was the author in the Tribunal, and the Hon’ble Supreme Court has laid down that mere making of the claim which is not ascertainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. In the instant case, the assessee has duly submitted the particulars in respect of the interest on FDR and reduced the same out of the project expenses. The claim made by the assessee has not been accepted by the AO, therefore, it cannot be said that the assessee has submitted inaccurate particulars as the AO has taken a view which is different from the view taken by the assessee.
I have also gone through the decision of Hon’ble Delhi High Court in the case of CIT vs. Dhoomketu Builders & Development (P.) Ltd. reported in 34 txmann.com 18 (Delhi), a copy of which was filed by the ld. Counsel at the fag end of the hearing. This decision, I noted, supported the contention of the assessee that there is a difference in the setting up of the business as well as the commencement of the business. The expenses incurred after the setting of the business are to be treated as revenue expenditure. The acquisition of land may be a first step in the commencement of the business but section 3 of the Act does not speak of commencement of the business. It speaks only of setting of the business. This position thus supports the contention of the assessee that the claim made by the assessee was a bonafide one. I am, therefore, of the view that it is not a fit case where it can be said that the assessee has filed the inaccurate particulars and accordingly, the assessee is liable for penalty u/s 271(1)(c) of the Act. I accordingly set aside the order of the CIT (A).
In the result, the appeal of the assessee is allowed. Order pronounced in open court on this 15th day of February, 2016.