2015 (1) TMI 1374 - AT - Income Tax

Penalty order passed u/s 271(1)(c) - Addition of interest income - non recognizing the interest on the loans granted by respective erstwhile amalgamating companies - Held that - During the year under consideration there was an amalgamation of various entities with the assessee. The assessee has explained the reasons for not recognizing the interest on the loans granted by respective erstwhile amalgamating companies in Note No.14 of notes of accounts. Similarly, the assessee has also given reasons for not making the provision for the interest on the loans taken by the erstwhile amalgamating companies in Note-13 of notes of account. AO has made the addition in respect of interest income by reproducing a wrong note No.13 instead of relevant note being note No.14. When the assessee has adopted a uniform policy and approach in respect of interest expenditure as well as interest income, then the claim of the assessee in not recognizing the interest income would not amount to concealment of particulars of income or furnishing of inaccurate particulars of income. The assessee has furnished the relevant explanation as well as details and the addition was made by the AO on the basis of explanation of the assessee in the notes of accounts therefore, not accepting the claim as well as the explanation of the assessee would not ipso facto lead to the conclusion that the assessee has concealed the particulars of income or furnished inaccurate particulars of income attracting the penalty provisions of section 271(1)(c). - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) for non-recognition of interest income due to merged entities.

Analysis:
The appeal was against the penalty order under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2009-10. The assessee, a non-banking financial company, did not account for interest income accrued and receivable during the financial year 2008-09 due to merged entities. The Assessing Officer (AO) added back the amount to the income of the assessee, and subsequently levied a penalty being 100% of the tax sought to be avoided. The assessee contended that the non-inclusion of interest income was due to pending negotiations and finalization of terms and conditions with the merged entities. The Commissioner of Income Tax (Appeals) upheld the penalty. The assessee argued that the decision not to recognize the interest income was bona fide, as explained in the notes on accounts. The Authorized Representative (AR) cited relevant case laws to support the contention that there was no concealment of income. The Departmental Representative (DR) argued that the failure to offer the income to tax amounted to furnishing inaccurate particulars of income. The Tribunal considered the explanations provided by the assessee in the notes on accounts, noting that a uniform decision was taken regarding interest expenditure on loans. The Tribunal found that the assessee's claim for non-recognition of interest income was bonafide and in line with its accounting policy. It was observed that the AO had incorrectly focused on one aspect while ignoring the overall approach of the assessee. The Tribunal, referring to relevant case laws, held that the assessee's explanation and details provided were sufficient, and the penalty under section 271(1)(c) was deleted. The appeal of the assessee was allowed, and the penalty was set aside.