2015 (3) TMI 1182 - AT - Income Tax

Penalty u/s. 271(1)(c) - Held that - No valid basis in making a claim for bank interest i.e., to the extent covered by section 43B. That is to say that the assessee could not substantiate its claim of it being based either on any material or even as arising on account of a bona fide mistake, validating the charge of penalty in terms of Explanation 1 to section 271(1)(c). Income to that extent, but for its scrutiny by the Revenue, would have escaped assessment. The decision in the case of Price Waterhouse Coopers (P.) Ltd. ( 2012 (9) TMI 775 - SUPREME COURT ) is inapplicable in the facts and circumstances of the case. We, accordingly, confirm the penalty thereon, levied at the minimum rate of 100% of the corresponding tax sought to be evaded, to that extent, so that no penalty could be levied on the interest attributable to the cash credit account, which the A.O. shall verify to his satisfaction, excluding also the interest paid, if any, on the term loan up to the due date of the filing the return, which again the A.O. shall verify. - Decided partly in favour of assessee.

Summary

Issues:
Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2003-04.

Analysis:

1. Background and Facts:
The appellant, a company engaged in the business of manufacturing insulation panels and distributing ice cream, reported a loss in its income tax return for the year 2003-04. The issue arose when the appellant claimed interest deduction of Rs. 2,73,95,100 without providing sufficient evidence to support the claim. Consequently, the entire interest amount was disallowed during assessment, leading to the initiation of penalty proceedings under section 271(1)(c).

2. Contentions:
The appellant argued that the disallowance of interest was based on an inadvertent mistake and that only the interest on the term loan qualified for deduction under section 43B. The appellant also cited the Finance Act, 2003, and Board Circular No. 14-XL-35 to support its case. On the other hand, the Departmental Representative contended that the appellant failed to substantiate its claim due to a lack of relevant information.

3. Judgment:
The Tribunal observed that the appellant's claim of inadvertent mistake lacked substantiation. The appellant's inability to reconcile bank accounts and the disclaimer by tax professionals weakened its argument. Additionally, the Tribunal emphasized that the appellant's plea of no loss to revenue was irrelevant under Explanation 4 of the Act. Consequently, the Tribunal confirmed the penalty on the interest amount that would have escaped assessment without Revenue scrutiny. The penalty was levied at 100% of the tax sought to be evaded, excluding the interest attributable to the cash credit account.

4. Conclusion:
The Tribunal partially allowed the appellant's appeal, confirming the penalty on the interest amount related to the term loan. The judgment highlighted the importance of substantiating claims and complying with tax laws to avoid penalties. The decision underscored the necessity for taxpayers to provide accurate and verifiable information to support their deductions and avoid inadvertent errors that could lead to penalties under the Income Tax Act.