2010 (3) TMI 1192 - AT - Income Tax

Summary

Issues involved:
The appeal challenges the cancellation of a penalty u/s 271(1)(c) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax(Appeals) for the assessment year 2002-03.

Assessment of Income:
- The appellant, a Company, filed its return of income for the assessment year, declaring business loss and income from capital gains. The Assessing Officer determined the total income, initiated penalty proceedings u/s 271(1)(c), and levied a penalty in respect of income from other sources.
- The Learned Commissioner of Income Tax(Appeals) cancelled the penalty, citing the inappropriateness of netting interest expenses against interest income, referencing the Tuticorin Alkali Chemicals and Fertilizers Ltd. judgment. The appellant's treatment of interest income differed from the Assessing Officer's approach, but it was deemed a valid view and not grounds for penalty.

Bonafide Explanation and Precedent:
- The Revenue contended that the appellant concealed income particulars, urging restoration of the penalty based on the Tuticorin Alkali Chemicals and Fertilizers Ltd. judgment. However, the appellant's counsel highlighted a previous ITAT order accepting the deduction of interest expenses against interest income, demonstrating a bonafide explanation.
- The Tribunal upheld the cancellation of the penalty, noting the bonafide nature of the appellant's explanation based on the precedent set in the previous assessment year. The explanation was considered valid, leading to the dismissal of the Revenue's appeal.

The judgment emphasizes the importance of a bonafide explanation in tax matters and the relevance of precedent in determining the appropriateness of penalty imposition u/s 271(1)(c) of the Income Tax Act.