2014 (6) TMI 606 - AT - Income Tax

Levy of penalty u/s 271(1)(c) of the Act Claim of interest - Held that - Following Bharat Commerce and Industries Ltd vs. CIT 1998 (3) TMI 2 - SUPREME Court the tax under the Act as well as the interest on the short fall in its payment is paid by the assessee not in his capacity as a trader, but as a taxable entity under the Act, levying tax on income or profits from any activity, including from business or profession it does not qualify to be an outgoing of the business, which has to be adjudged in the light of the accepted commercial practices and trading principles. A mistake is itself an admission of a wrong claim and, thus, of an inability to explain the same, so that there is by definition concealment and/or furnishing inaccurate particulars of income - a mistake cannot be said to be deliberate, which a sine qua non of penalty - the assessee s action in claiming the interest cannot be said to be a mistake - the claim that it is the booking of the interest in accounts that led to the wrong claim in the return, is not correct - If the interest gets included as an organizational expense by mistake , the same would also likewise stand to be included in working the disallowance u/s14A there was no justification by the assessee for the exclusion of interest on the ground that the same does not finance, either in whole or in part, the investments yielding income not forming part of the total income thus, the contentions of the assessee cannot be accepted and the levy of penalty is upheld Decided against Assessee.

Summary

Issues:
Maintainability of penalty u/s. 271(1)(c) in the facts and circumstances of the case.

Analysis:

Issue 1: Maintainability of Penalty u/s. 271(1)(c)
The appeal concerned the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2009-10. The appellant, a company in the business of manufacturing and supply, claimed interest as a financial expense in its return of income. The penalty was imposed due to the appellant's explanation of ignorance, which was deemed unsatisfactory as the mistake was not considered bona fide. The appellant argued that the error occurred at the end of the company's auditor, but this argument was rejected as there was no mistake in the audit report. The appellant also referred to a Guidance Note to the Companies Act, which was not considered as it was a new explanation. The tribunal found that the interest paid did not qualify as a business expense and upheld the penalty based on precedents and commercial practices.

Issue 2: Mistake and Bona Fide Claim
The appellant claimed that the interest claim was a mistake, albeit bona fide, and should not attract penalty u/s. 271(1)(c). The tribunal observed that a mistake implies concealment or furnishing inaccurate particulars of income, which would not be excluded under the explanations provided in the Act. The tribunal highlighted that the words 'honest' and 'bona fide' are implicit in the notion of a mistake. While the appellant cited judicial responses and the proposition that a 'reasonable cause' saves penalty, the tribunal found that the interest claim was not a mistake but a misrepresentation, as the interest was paid under the income tax provisions. The tribunal concluded that the appellant failed to establish the mistake, and therefore, upheld the penalty.

In conclusion, the tribunal dismissed the appellant's appeal and confirmed the levy of penalty in respect of the interest claim.