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2014 (11) TMI 20 - HC - Income TaxDeletion of penalty u/s 271(1)(c) - Capitalization of interest – Held that:- The Tribunal was rightly of the view that the changes in capitalization or de- capitalization of interest were effected by the assessee consequent to well controlled and regulated statutory regime under the aegis of Central Government - The assessee's book results after statutory audit are subjected to audit and correction of CVC and CAG - The changes carried out by the assessee are in consonance to the recommendations of CVC and CAG - these details were filed along with the return of income - Penalty imposed under section 271(1)(c) is a civil liability - The section is enacted as a provision to assist and to vigorously check and prevent loss of revenue, but penalty for concealment can be imposed after noticing and applying the provisions of Section 271 (1)(c) of the Act including Explanation 1 - This is the primary and the basic flaw in the penalty orders passed by the AO - the Tribunal take due notice of the factual matrix and examine the question of bonafides - It stands recorded that the returns filed and income declared was as per the statutory audit report and the interest paid had been capitalized. Subsequently, audit objections that excessive interest had been capitalized, were raised by CVC and CAG - a part of interest so capitalized should have been treated as revenue expenditure - In order to comply with the said objections, excess interest was decapitalised - The assessee had given truthful and cogent explanation without concealing or hiding facts why interest relating to earlier years, which was capitalized, had been accounted for as a liability in the current years - It cannot be doubted or even questioned that the assessee had disclosed all facts relating to the explanation offered - The Tribunal after examining the factual matrix and the explanation given by the assessee, have come to the conclusion that the explanation of the assessee was bona fide – thus, the order of the Tribunal is upheld – Decided against revenue.
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