2012 (7) TMI 994 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty u/s 271(1)(c) for interest received on Government of India-Capital Index Bonds.
2. Confirmation of penalty u/s 271(1)(c) on receipt of premium on redemption of debentures.
3. Deletion of penalty u/s 271(1)(c) in respect of disallowance of repair expenses treated as capital expenditure.

Summary:

Issue 1: Confirmation of penalty u/s 271(1)(c) for interest received on Government of India-Capital Index Bonds

Assessee purchased 6% Government of India-Capital Index Bonds and received interest of Rs. 75,00,000, which was mistakenly categorized as tax-free. Upon realizing the error during assessment proceedings, the assessee voluntarily offered the interest for taxation. The AO initiated penalty proceedings u/s 271(1)(c) for concealment of income. The CIT(A) confirmed the penalty, but the Tribunal observed that the mistake was inadvertent and the interest was voluntarily offered for tax. The Tribunal held that there was no intention to conceal income and canceled the penalty, allowing the assessee's appeal.

Issue 2: Confirmation of penalty u/s 271(1)(c) on receipt of premium on redemption of debentures

Assessee claimed premium on redemption of debentures as income from capital gain, which the AO assessed as income from other sources. The CIT(A) confirmed the AO's action, and no further appeal was filed. The AO levied penalty u/s 271(1)(c) for filing inaccurate particulars of income. The Tribunal noted that the assessee disclosed all relevant facts and the dispute was only regarding the head of income. Citing precedents, the Tribunal held that a mere change of head does not amount to concealment of income and canceled the penalty, allowing the assessee's appeal.

Issue 3: Deletion of penalty u/s 271(1)(c) in respect of disallowance of repair expenses treated as capital expenditure

During assessment, the AO disallowed certain repair expenses as capital expenditure. The CIT(A) confirmed the disallowance but canceled the penalty, stating that the claim was bonafide and the difference between revenue and capital expenditure is thin. The Tribunal upheld the CIT(A)'s decision, agreeing that a bonafide claim, even if disallowed, does not warrant penalty u/s 271(1)(c). The Tribunal dismissed the department's appeal.

Conclusion:

The Tribunal allowed the assessee's appeal regarding penalties on interest income and premium on redemption of debentures, and dismissed the department's appeal on penalty for repair expenses.

Pronounced in the open court on 27th July, 2012