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Income Tax Appellate Tribunal, DIVISION BENCH’A’, CHANDIGARH
Before: SMT. DIVA SINGH & DR. B.R.R. KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH’A’, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA No.488/Chd/2017 Assessment Year: 2006-07
M/s Bector Food Specialities Ltd. Vs. The DCIT B-XXXIII/ 324, G.T. Road Circle-III (West), Ludhiana Ludhiana PAN No. AABCM9495K
(Appellant) (Respondent) Appellant By : Shri. Subhash Aggarwal Respondent By : Shri. Yoginder Mittal
Date of hearing : 11/07/2018 Date of Pronouncement : 16/07/2018
ORDER PER DR. B.R.R. KUMAR, A.M: The present appeal has been filed by the Assessee against the order of the Ld. CIT(A)-1, Ludhiana dt. 16/01/2017. 2. In the present appeal assessee has raised following grounds:
That the learned CIT(A)-1 has erred in confirming the levy of penalty u/s 271(1)(c) on the followings disallowances:-
i) Disallowance of depreciation on capital receipt Rs. 2,46,000/- of subsidy of Rs. 16,40,0007- ii) Addition on account of capitalization of interest Rs. 9,51,133/- u/s 36(1)(iii) on amount Invested in the purchase of property 2. That the Learned CIT(A) has ignored the fact that no penalty was leviable as all the facts stood disclosed and there was no furnishing of inaccurate particulars of income. 3. That the Learned CIT(A) has ignored the fact that the statutory notice issued u/s 271(1)(c) was defective in as much as it did not specify whether the proceedings u/s 271(1)(c) were for furnishing of inaccurate particulars of income or concealment of income and as such the confirmation of penalty was against the law and facts of the case.
Brief facts of the case are that the assessment in the case of Assessee Company is completed by the Assessing Officer under section 143(3) of the Income Tax Act,1961 vide order dt. 31/12/2008. The additions made relevant to
the appeal in question are disallowance of depreciation on capital receipt of subsidy and addition on account of capitalization o f interest under section 36(1)(iii) on amount invested in the purchase of property.
An addition of Rs. 16,40,000/- was made by the Assessing Officer by treating the amount of capital subsidy received by the Assessee Company from Ministry of Food Processing Industries as revenue receipt. The Ld. CIT(A) directed that the amount received from Ministry of Food Processing should be treated as capital receipt and reduced from the cost of plant and machinery to that extent the Ld. CIT(A) in quantum proceedings confirm the addition to the extent of Rs. 2,46,000/- which actually represents the amount of depreciation on capital receipt of Rs. 16,40,000/-.
Before us, the Ld. AR relied on the submission filed before the Ld. CIT(A) wherein it was argued that making a claim which is disallowed in assessment does not call for levy of penalty. We find the issue related to taxability of subsidy to be treated as capital or revenue and if treated as capital it has to be reduced from the cost of plant & machinery as determined by the Ld. CIT(A). This disallowance do not fall under the any category of either concealment or furnishing of inaccurate particulars of income. All the material facts have been brought on record in the income tax return. Hence, no penalty can be levied as the assessee has bonafide belief and reasons to claim the subsidy received as revenue receipt.
Regarding the addition on account of capitalization of interest under section 36(1)(iii) brief facts of the issue are that the assessee incurred an expenditure that the assessee booked a flat from M/s Jaypee Greens Ltd. for a consideration of Rs. 3,60,00,000/- against Unit No. E-124. As per the copy of account of M/s Jaypeee Greens Ltd. from 01/04/2004 to 31/03/2006, the assessee has debited to M/s Jaypee Greens Ltd. for an amount of Rs. 3,54,51,000/- out of which an amount of Rs. 3,18,51,000/- has been paid as housing loan from ICICI HFC Ltd., vide entry dated 30/09/2005. The assessee has not capitalized the interest paid to M/s Jaypee Greens Ltd. New Delhi. The assesse has taken a loan from bank to make payments to M/s Jaypee Greens Ltd. and it a specific loan for this property. The assesse has paid an amount of Rs. 9,51,133/- as interest (approx) which has not been capitalized. On the other
hand, the assessee has capitalized the interest on machinery under installation as per its submissions dt. 23/12/2008. The assessee has submitted its reply as under:- “11. The advance given to Jaypee Green is for acquiring property which is required for the purpose of business. This advance is given in the normal course of business and interest on these advances cannot be disallowed. As regards interest on machinery under installation we have taken a term loan on the same and interest payable on the loan has been capitalized. Copy of account of machinery under installation is enclosed.”
Before us the Ld. AR relied on the judgment in the case of M/s PHI Seeds India Ltd. 301 ITR 13 (Del) wherein it has been held that claim for a deduction found to be erroneous doesn’t amount to concealment of income enhanced penalty could not be imposed. And also of the judgment in the case of Kambay Software India Pvt. Ltd. wherein it has been held that rejection of assessee’s bona fide claim vis-à-vis addition to income doesn’t lead to levy of penalty. Before penalty is imposed the A.O. has to be satisfied that the assessee has concealed income, or that the assessee has furnished inaccurate particulars or that the case of assessee is covered by deeming fiction of one of the explanations appended to s.271(1)(c) and civil liability of penalty under section 271(1)(c) cannot be construed to mean that a penalty is an automatic consequence of an addition being made to the income of the assessee.
7.1 Similarly in the case of CIT Vs. Haryana Warehousing Corp. (2009) 314 ITR 215 (P&H) wherein the judgment in the case of Dharmindra Textiles has been distinguished in as sense that incorrect particulars of income and claim for exemption in relevant assessment year for a legitimate and bonafide claim in terms of conflicting determination of law, and when the assessee disclosed entire facts without having concealed any income imposition of penalty not justified.
Keeping in view the facts that this is not a case of concealment of particulars by the assessee or furnishing of inaccurate particulars of income as the assessee was disclosed all the relevant material facts pertaining to the obtaining of the loan, payment of interest capitalization, or treating the income as revenue have been fully disclosed, we hereby hold that is not a fit case for levy of penalty as per the provisions of Section 271 (1)(c) read with explanation 1 of Income Tax Act,1961.
Since the matter has been decided on merits of the case, any adjournment on the ground no. 3 pertaining to issue of notice become infructuous and hence not been dealt with.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court.
Sd/- Sd/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 16/07/2018 AG
Copy to:
The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) The DR 5.