Nuchem Ltd., Faridabad vs Department Of Income Tax

This appeal by the Revenue is directed against the order passed by

the CIT(A) on 21.6.2010 deleting the penalty of Rs.46,89,660/- imposed

by the Assessing Officer u/s 271(1)(c) of the Income-tax Act, 1961

(hereinafter also called `the Act') in relation to the assessment year

2005-06.

ITA No.4038/Del/2010

2. Briefly stated, the facts of the case are that the assessee claimed

deduction for interest amounting to Rs.74,71,464/- against which credit

was availed by M/s Nuchem Machine Tools Ltd., a subsidiary company

of the assessee. Since Nuchem Machine Tools Ltd. could not make

available the title deeds of land and building, they failed to get finance

for their business activity and that is how the interest was borne by the

assessee. The AO refused to grant deduction for the said sum.

Eventually, penalty was imposed on this disallowance which came to be

deleted in the first appeal.

3. We have heard the ld. DR and perused the relevant material on

record. There is no appearance from the side of the assessee despite

notice. It can be seen from the facts recorded in the assessment order on

this issue that the assessee claimed the deduction for interest in respect

of a loan which was availed by its subsidiary company. Considering the

factual position prevailing in the instant case on a holistic manner, we

find that the claim of the assessee is not one which is evidently

inadmissible. A person properly instructed in law may canvass a view

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about the deduction of interest for the loan obtained by a subsidiary

company, which it is unable to discharge. As the assessee surrendered

the amount during the course of assessment proceedings, the point of its

allowability or otherwise does not survive. In so far as the question of

penalty on such disallowance of interest is concerned, we are satisfied

that this disallowance does not come within the mischief of section

271(1)(c) of the Act. Our view is fortified by the judgment of the

Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd.

(2010) 322 ITR 158 (SC) in which it has been held that simply for the

reason that the AO did not find the claim of the assessee to be

sustainable in law up to a certain extent, cannot justify penalty u/s

271(1)(c), more so, when particulars furnished by the assessee were not

found to be inaccurate. The facts of the instant case are, mutatis

mutandis, similar to those considered and decided by the Hon'ble

Supreme Court in the above judgment. Respectfully following the

precedent, we hold that the ld. CIT(A) was justified in deleting the

penalty u/s 271(1)(c) of the Act on this score.

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4. Second amount on which the penalty has been imposed is Excise

claim receivable amounting to Rs.49.26 lac written off by the assessee.

The AO opined that this amount was not deductible. When confronted,

the assessee revised computation of income offering Rs.49.26 lac as

income. The AO imposed penalty in respect of this amount. The ld.

CIT(A) deleted the penalty.

5. We find that out of the above sum of Rs.49.26 lac, which related to

old records, a sum of Rs.8.81 lac was partly allowed by the then AO and

a sum of Rs.10.10 lac was allowed by the CIT(A) which fact has been

recorded by the AO himself in the instant order on page 5 of his order.

Further, a sum of Rs.30.34 lac was allowed as exempt by the CIT(A)

vide his order dated 3.8.92 for an earlier year. This factual scenario

shows that the amount of Excise claim receivable pertained to earlier

assessment years and the ld. CIT(A) has recorded that it related to the

AYs 1978-79 to 1988-89 which was written off because of non-receipt

of the amounts even after a period of more than 15 years. In our

considered opinion, this surrender made by the assessee cannot be

4 ITA No.4038/Del/2010

brought within the ambit of penalty u/s 271(1)(c) of the Act. The factual

matrix as noticed above clearly shows the bona fides of the assessee's

claim in writing off the amount in the original return, which was albeit

offered for taxation during the course of assessment proceedings. We,

therefore, uphold the deletion of penalty on this amount.

6. The last component of penalty is a sum of Rs.4,18,142/-

disallowed u/s 40(a)(ia) of the Act. The AO, on verification of the

details of deduction of tax at source and its deposit in the Government

account, noticed that the assessee failed to deposit TDS before the

respective due dates. Such tax at source was deducted under sections

192, 194C and 194J. On being called upon to explain the delay, the

assessee revised its computation of income offering disallowance u/s

40(a)(ia) of the Act for a sum of Rs.4,18,142/-. The AO imposed

penalty on this amount, which came to be deleted in the first appeal.

7. After considering the submissions advanced by the ld. DR and

perusing the relevant material on record, we find that the assessee has

tried to make out a case before the ld. CIT(A) that the amended

5 ITA No.4038/Del/2010

provisions of the Finance Act, 2008 w.e.f. 1.4.2005 do not permit even

disallowance u/s 40(a)(ia). The assessee claimed that the disallowance

made by the AO was not in accordance with the proviso substituted by

the Finance Act, 2008 made operative retrospectively from 1.4.2005,

also covering assessment year under consideration. In our considered

opinion, even though the assessee offered the disallowance in the revised

return at the instance of the AO, but, the penalty on this disallowance is

not exigible due to the later retrospective amendment applicable to the

assessment year under consideration as well. We, therefore, uphold the

deletion of penalty.

8. In the result, the appeal is dismissed.

The order pronounced in the open court on 30.04.2015.

Sd/- Sd/- [H.S. SIDHU] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated, 30th April, 2015. dk

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Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

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