2015 (4) TMI 405 - HC - Income Tax

Penalty u/s 271(1)(c) - interest payment on the borrowings disallowed - Held that - Here the assessee may not be successful in substantiating their claim but that by itself does not mean penalty follows. Eventually for withholding a imposition of penalty whether the particulars of income or furnishing of inappropriate particulars of income is an element present and with regard thereto any explanation is offered or not or if offered whether the same is false or an offer of such explanation which the assessee is unable to substantiate and it is lacking in bona fides that the penalty can be imposed. All these ingredients in the present case are absent according to the Tribunal. The view taken by the Tribunal and from paragraphs 5 to 8 of the impugned order is imminently possible given the factual background. Such a view cannot be termed as perverse or vitiated by an error of law apparent on the face of the record. - Decided against assessee.

Summary

Issues: Penalty imposition under section 271(1)(c) for assessment year 1998-1999.

Analysis:
The judgment pertains to an appeal where the Tribunal set aside the Commissioner's order imposing a penalty on the assessee for the assessment year 1998-1999. The issue arose from the assessee claiming interest payment on a loan obtained for purchasing shares of two private companies. The Assessing Officer disallowed the claim, resulting in an addition to the income. Subsequently, penalty proceedings were initiated under section 271(1)(c). The Tribunal analyzed the provisions of the said section along with Explanation I (Clause A) and (Clause B) to determine if penalty was warranted based on the facts and circumstances of the case.

The Tribunal concluded that the mere failure of the assessee to substantiate their claim did not automatically lead to the imposition of a penalty. It emphasized that for a penalty to be imposed, specific elements such as withholding income particulars or furnishing inappropriate particulars had to be present. The Tribunal found that in the current case, these crucial elements were absent. The judgment highlighted that the lack of bona fides in the explanation provided by the assessee, its substantiation, and the presence of any false information were essential considerations in penalty imposition under section 271(1)(c).

Ultimately, the High Court upheld the Tribunal's decision, deeming it reasonable and not tainted by any legal errors. The Court dismissed the Revenue's appeal, stating it lacked merit, and no costs were awarded. The judgment underscores the importance of fulfilling specific criteria and demonstrating bona fides in penalty proceedings under section 271(1)(c) to justify the imposition of penalties for tax-related matters.