2013 (3) TMI 533 - AT - Income Tax

Penalty u/s.271(1)(c) - Disallowance of interest - Notice u/s.148 Badla interest is assessed under the head Income from other sources then the bad debts cannot be allowed as there is no income assessable under the head business - Held that - In the case of Dilip Shroff (2007 (5) TMI 198 - SUPREME Court)has explained the expression concealment and inaccurate particulars . Merely because the claim is rejected by the A.O., which is not otherwise mala fide no penalty can be levied. In the present case, Once the legal interpretation is to put into process but otherwise all particulars are on record it cannot be said that the assessee has filed any inaccurate particulars or concealed particulars of income. In our opinion, the assessee s claim of bad debt cannot be treated as a mala fide claim. This is not fit case for levying the penalty u/s.271(1)(c). - No penalty - Decided in favor of assessee.

Summary

Issues:
Challenge to penalty under section 271(1)(c) of the Income Tax Act for the Assessment Year 2001-02.

Analysis:
The appellant challenged the penalty imposed by the Ld. CIT (A) for the Assessment Year 2001-02 under section 271(1)(c) of the Income Tax Act. The primary issue was whether the CIT (A) was justified in confirming the penalty levied by the Assessing Officer (A.O) under section 271(1)(c) of the Act. The facts revealed that the assessee initially declared a total income of 'nil' for the A.Y. 2001-02, which was later revised by the A.O. after issuing a notice under section 148. The A.O. disallowed a claim of bad debts amounting to Rs. 14,09,525.39, primarily related to advances made to a finance company. The A.O. considered the bad debts as concealment of income or filing inaccurate particulars of income, leading to the penalty imposition.

The A.O. justified the penalty by alleging that the assessee deliberately filed inaccurate particulars of income to conceal the amount of bad debts. The A.O. contended that as the badla interest was assessed under the head "Income from other sources," the bad debts claimed could not be allowed under the head "business." However, the Tribunal found that the financing made to the finance company had a nexus with Badla transactions as per the Bombay Stock Exchange scheme. The Tribunal observed that the disallowance of the bad debts was a matter of legal interpretation and not a case of deliberate concealment or filing inaccurate particulars of income.

The Tribunal referred to the legal interpretation in the case of Dilip Shroff and emphasized that the rejection of a claim by the A.O., without mala fide intentions, does not warrant a penalty. The Tribunal concluded that the assessee's claim of bad debt could not be considered as mala fide. Despite differing views between the assessee and the A.O. on the claim, the Tribunal held that it was not a suitable case for levying a penalty under section 271(1)(c). Consequently, the Tribunal deleted the penalty imposed by the A.O., allowing the grounds raised by the assessee in the appeal.

In summary, the Tribunal ruled in favor of the assessee, allowing the appeal and deleting the penalty imposed under section 271(1)(c) for the Assessment Year 2001-02.