INCOME TAX ACT, 1961

Section 271(1)(c)

Penalty under section 271(1)(c) - Interest paid on unsecured loan, whether to be allowed as revenue expenditure or not - Furnishing of inaccurate particulars of income -

Assessee had claimed interest expenses on the unsecured loan which was utilized for the purpose of investment in immovable properties. AO alleged that interest paid on unsecured loan should be capitalized and the same could not be allowed as deduction under section 36(1)(iii). AO in the assessment order framed under section 143(3) initiated penalty proceedings under section 271(1)(c) on account of submission of inaccurate particulars of income. Held: It is a settled law that interest on loan used for investment purposes should be capitalized and added to the value of investment. If investments were subject to depreciation, then assessee would be entitled to claim the deduction of interest in the form of depreciation under section 32. If investments are not subject to depreciation, then assessee would be entitled to deduction of interest expenses at the time of sale of such investment. The claim made by assessee in the return of income on account of interest expenses could be an inaccurate claim, which could not be equated with the inaccurate particulars of income and no penalty was to be imposed under section 271(1)(c).

Relied:CIT v. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC) : 2010 TaxPub(DT) 1683 (SC) CIT-I v. Amol Dicalite Limited in (Tax Appeal No. 935 of 2014, dt. 8-9-2014) and M/s. Balaji Infra Projects Ltd., v. ACIT, in (ITA No. 2627/Mum/2010, dt. 13-4-2011)

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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