Mediavest India P. Ltd. v. Asstt. CIT

INCOME TAX ACT, 1961

--Penalty under section 271(1)(c) --Leviability Addition to income on ground that capital expenditure claimed in Profit and Loss Account--The assessee had paid interest during the year on the secured loan taken by it. Such an interest was claimed as business expenditure in the profit and loss account. Assessee contended that it had made investment in Diligent Media Corporation Ltd., for acquiring controlling interest in the said company and since, the loan was mainly for business purpose the interest was allowable under section 36(1)(iii), and no disallowance should be made. However, the AO rejected the assessee's contention and held that such an interest should be capitalized as cost of investment. AO further levied penalty under section 271(1)(c) for disallowance of interest. CIT(A) confirmed penalty. Assessee was in appeal before Tribunal stating that the assessee had given entire particulars of interest and while claiming the expenditure under section 36(1)(iii) the assessee had a bona fide belief for such a claim, which was also supported by High Court decisions. Held: AO disallowed the interest expenditure but at the same time allowed it to be capitalized towards the costs of investment. Thus, the disallowance had been made only on the ground that it was not revenue expenditure but a capital expenditure which needed to be capitalized towards the cost of investment. The assessee had furnished all the particulars of the interest in the profit and loss account and submitted that the claim was on bona fide belief, based on certain High Court Rulings and also the fact that assessee was purely in the business of promoting and controlling the companies relating to Media. Thus, such a claim could not tantamount to furnishing of inaccurate particulars of income or concealment of income. No penalty either for concealment of income or for furnishing of inaccurate particulars of income, could be levied. As the assessee has furnished all the necessary information and the addition had been made purely on ground that expenditure was a capital expenditure and it should have been capitalized as cost of investment. Under these facts, the ratio laid down by the Supreme Court in the case of Reliance Petroproducts (P) Ltd. (supra) was squarely applicable. Thus, the penalty levied by the AO and confirmed by the CIT(A) was deleted.

Income Tax Act, 1961, Section 271(1)(c)

Followed:CIT v. Reliance Petroproducts (P) Ltd. 322 ITR 158 (SC)

REFERRED : CIT v. Rajeeva Lochan Kanoria (1995) 208 ITR 616, CIT v. Laxmi Agents (P) Ltd. (1980) 125 ITR 227 (Guj)

FAVOUR : In favour of the assessee

A.Y. : 2006-07

IN THE ITAT MUMBAI B BENCH

SUBSCRIBE FOR FULL CONTENT