TMI Blog2014 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ty - 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 expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 271 (1)(c) of the Act amounting to ₹ 128.10 lacs for the assessment year 1999-2000 and ₹ 19.25 lacs for the assessment year 2000-2001. 3. The respondent assessee, a Public Sector Undertaking during the relevant period operated integrated steel plants and was engaged in activities relating to manufacturing and sale of steel articles etc. The respondent-assessee had shown considerable capitalization of assets on account of expansion and modernization. As installation, erection and commissioning of new machinery involved substantiated gestation time, Interest, relatable to the borrowings from the date of acquisition to the date of putting the asset to use, were added to the value of the assets and accordingly capitalized. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment years in question. Consequently, notices under section 148 of the Act were issued. 6. In the re-assessment orders, the Assessing Officer held that interest claimed (Rs.. 366 lacs and Rs.. 50 lacs for the assessment years 1999-2000 and 2000-01) pertained to earlier years, and was not related to the years in consideration. Therefore, the said interest claimed in the profit and loss account was disallowed. We are not concerned with the quantum order in these appeals, but with the penalty of ₹ 128 lacs and ₹ 19.25 lacs, for concealment of income, imposed by the Assessing Officer, under section 271(1)(c) of the Act, for furnishing inaccurate particulars of income by claiming prior period expenses. 7. Before w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the quantum proceedings.) 8. 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 Assessing Officer. 9. The C.I.T (A) by a common order dated 20.5.2013 set aside the penalty and observed that it was a case of wrong interpretation and understanding of the legal and accounting principles. Justification of the assessee should be accepted as bona fide. He observed:- After considering the facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of CIT(A) deleting these penalties. His orders are upheld . 11. The appellate orders by the C.I.T (A) and 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. In other words, 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. This impacted, the profit and loss account for the current years, even when the interest related to earlier years, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than one year. The interests incurred on borrowing related to it are capitalized. The capitalization of interest is by debiting capital WIP/Plant machinery and crediting interest. The company hasa number of expansion schemes in progress at any given time. When the plant is commissioned, it is shifted from Capital work in progress (WIP) to plant on the basis of capitalization report. Insome cases, the subsequent events bring out the capitalization of a particular scheme over and under capitalized on erroneous adjustments between the schemes or on account of an error in date of start or finish or erection, etc. such error are correct when discovered. It has been found in this year (1999-2000) that interest of 366 lacs had been excess c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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