2014 (7) TMI 298 - AT - Income Tax

Cancellation of penalty u/s 271(1)(c) of the Act Held that - It is the interest payments on the working capital borrowed from the bank which were disallowed by the AO in the course of scrutiny assessments completed, that led to the penalties u/s 271(1)(c) of the Act assessee has explained the various difficulties that it had to encounter on account of the fact of the concerned accountant and others, who were handling the accounting matters, who left the company, and the hostile relationship between the assessee company and the banker, which prevented it from complying with the requirement of the AO - there was a justifiable reason for the non-compliance from the assessee thus, there was no justification for the imposition of penalty u/s 271(1)(c) of the Act merely because a claim made by the assessee is disallowed in the assessment, it cannot lead to the inference of either concealment of income or furnishing of inaccurate particulars of income by the assessee. Also in COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT it has been held that there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false - mere making of a claim by the assessee in the return does not tantamount to furnishing of inaccurate particulars of income, and consequently, every disallowance made in the assessment cannot lead to the inference of concealment thus, it is not a fit case for imposition of penalty u/s 271(1)(c) of the Act Decided against Revenue.

Summary

Issues Involved:
- Appeal against penalties levied under S.271(1)(c) of the Income-tax Act, 1961 for the assessment years 1999-2000, 2000-01, 2002-03, and 2003-04.

Analysis:

Issue 1: Disallowance of Interest and Imposition of Penalties
The appeals by the Revenue were directed against the order cancelling penalties under S.271(1)(c) for disallowance of interest claimed on bank loans. The Assessing Officer disallowed the interest claimed by the assessee, stating that funds were diverted for non-business purposes, leading to penalties under S.271(1)(c). The CIT(A) confirmed the action, but the Tribunal set aside the matter for fresh consideration. In the subsequent assessment, the interest disallowance was repeated, leading to penalty proceedings.

Issue 2: Assessee's Response to Penalty Notice
The assessee company claimed the interest under 'interest on working capital' and stated that business activity was carried out during the relevant assessment year. The Assessing Officer imposed penalties under S.271(1)(c) for furnishing inaccurate particulars intentionally, citing the non-business nature of activities and diversion of funds.

Issue 3: CIT(A) Decision and Appeal
The CIT(A) cancelled the penalties, citing the debatable nature of the interest claim and lack of evidence of inaccurate particulars. The Revenue appealed, arguing that the assessee deliberately made a wrong claim of expenditure, justifying the penalties. The assessee contended that every disallowance does not imply concealment or inaccurate particulars.

Judgment and Conclusion
The Tribunal upheld the CIT(A)'s decision, stating that disallowance of a claim does not automatically imply concealment. The Tribunal referenced the decision in Reliance Petro Products Ltd., emphasizing that a mere unsustainable claim does not constitute furnishing inaccurate particulars. As there was no dispute regarding interest payments, and the disallowance was based on assumptions, the Tribunal found no grounds for imposing penalties under S.271(1)(c). Consequently, all four appeals by the Revenue were dismissed.

This detailed analysis highlights the progression of events, legal arguments, and the Tribunal's reasoning in dismissing the appeals against the penalties imposed under S.271(1)(c) for the disallowed interest claims.