2012 (11) TMI 398 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance on interest - Held that - The penalty could not have been imposed merely on the basis that the addition made by the AO has been confirmed by the CIT(A) - It is the assessee who has to decide about the business need and expediency in the particular circumstances, and it has to demonstrate that the interest bearing fund was utilized for business purpose and commercial expediency. Whether there was a business expediency or not is a debatable issue & it has been well settled now that penalty cannot be imposed where the issue is debatable - in favour of assessee.

Summary

Issues:
Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 for alleged concealment and furnishing of inaccurate particulars of income.

Analysis:
The appeal was against the order of the Commissioner of Income Tax (Appeals) confirming a penalty of Rs. 38,79,835 under section 271(1)(c) of the Income Tax Act, 1961. The assessment determined the total income at Rs. 81,35,309, with additions for losses on securities trading and disallowance of interest. The penalty proceedings were initiated under section 271(1)(c) based on these additions. The CIT(A) confirmed the penalty, leading to the appeal before the Tribunal.

The Authorized Representative of the assessee argued that the addition for disallowance of loans had been deleted by the ITAT in a previous order, while the addition for disallowance of interest was confirmed. He contended that the penalty should not be imposed based solely on disallowances and that the interest expenditure was for trading in shares, not as loans. The ITAT noted that the penalty on the deleted addition did not stand, and regarding the interest disallowance, the assessee had provided details and explained the use of funds. The ITAT found that the issue of business need and expediency in advancing funds was debatable, and penalty cannot be imposed on debatable issues. Therefore, the ITAT allowed the assessee's appeal, stating that the penalty could not be confirmed solely on the basis of disallowed expenditure.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that penalty cannot be imposed on debatable issues and that the disallowance of expenditure alone does not warrant the levy of a penalty.