2011 (4) TMI 939 - AT - Income Tax

Penalty under Section 271(1)(c) - disallowance of the assessee s claim of interest payable - Held that - Where assessee has furnished necessary details as to the claim made and has not suppressed material facts relating to the claim. It s merely a case where the assessee s claim has been disallowed, without there being any evidence or material on record to show that the assessee had any mala fide intention to evade payment of taxes, penalty under section 271(1)(c) can t be levied. True that the Department is not supposed to prove mens rea on the part of the assessee but it is equally true that if the assessee can establish that he made the claim in bona fide manner and all particulars relating thereto have been disclosed, the penalty under section 271(1)(c) shall not be leviable. In favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) for disallowance of interest payable claim.

Analysis:
The appellant contested the penalty amounting to Rs. 4,90,800 levied under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1996-97. The penalty was imposed by the Assessing Officer concerning the disallowance of the assessee's claim of interest payable. The Assessing Officer added Rs. 12,27,000 to the assessment due to the disallowance, which was later deleted by the Commissioner of Income-tax (Appeals). The Commissioner highlighted that the interest amount was provided as a liability based on a court order, and thus, the addition was unjustified. However, the Tribunal reversed the Commissioner's decision, upholding the Assessing Officer's addition, leading to the penalty imposition.

The Tribunal noted a divergence of opinion between the Departmental authorities, where the Commissioner accepted the assessee's claim while the Assessing Officer did not. The Tribunal's decision to restore the Assessing Officer's addition indicated differing views on the interpretation of the assessee's liability regarding the levy sugar amount. Consequently, the Tribunal held that penalty under section 271(1)(c) was not warranted in this case.

Regarding the Assessing Officer's argument that the assessee furnished inaccurate particulars of income by not adding the interest provision in the assessment year under consideration, the Tribunal found that the assessee's varying positions in different assessment years were justified by subsequent events. The Supreme Court's orders in 1993 and 1996 regarding the levy sugar price influenced the assessee's actions, leading to the provision of interest payable in the assessment year 1996-97. The Tribunal concluded that the assessee's conduct did not demonstrate any mala fide intent to evade taxes, as there was no evidence of suppression of material facts. Given the bona fide nature of the claim and the disclosure of all relevant particulars, the Tribunal held that no penalty under section 271(1)(c) should be imposed, ultimately canceling the penalty and allowing the appellant's appeal.