2015 (5) TMI 424 - AT - Income Tax

Penalty u/s 271(1)(c) - deduction on account of interest u/s 24 claimed - Held that - AO in the course of assessment proceedings had not recorded any satisfaction while initiating the penalty proceedings, therefore, the penalty u/s 271(1)(c) of the Act was not leviable. In the present case, this contention of the ld. Counsel for the assessee that in the subsequent year similar claim was although disallowed but penalty proceedings were dropped was not rebutted. Therefore, on the identical facts in the year under consideration vis- -vis the subsequent year penalty u/s 271(1)(c) of the Act was not leviable, particularly when the department itself dropped the penalty in the subsequent year in similar facts. In the instant case the assessee claimed the deduction on account of interest u/s 24 of the Act because it was claimed and allowed in the preceding year, therefore, the claim of the assessee was a bonafide claim based on a similar claim of the earlier year, the assessee disclosed all the facts relating to the payment of interest and claim of deduction before the AO. Therefore, only on this basis that the claim in full was not accepted by the AO, it cannot be said that the assessee concealed the particulars of his income or furnished inaccurate particulars of his income. As such the penalty u/s 271(1)(c) of the Act was not leviable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.
2. Determination of whether the assessee concealed income or furnished inaccurate particulars.
3. Validity of the Assessing Officer's (AO) satisfaction for initiating penalty proceedings.
4. Consistency in the application of penalty provisions across different assessment years.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue is the imposition of a penalty amounting to Rs. 10,89,123/- under Section 271(1)(c) of the Income Tax Act. The AO levied this penalty on the grounds that the assessee furnished inaccurate particulars of income by claiming an incorrect deduction of interest expenses.

2. Determination of Whether the Assessee Concealed Income or Furnished Inaccurate Particulars:
The assessee filed a return declaring an income of Rs. 2,44,55,373/-, but the AO assessed the income at Rs. 2,76,91,030/-, making an addition of Rs. 32,35,660/-. The AO found discrepancies in the interest income reported and the interest expenses claimed. The assessee had netted interest received from various companies against interest paid, which the AO disallowed, leading to the penalty. The AO argued that the interest paid on housing loans was deductible under Section 24, but the balance interest payment was wrongly set off against income from House Property instead of being dealt with under 'Income from Other Sources'.

3. Validity of the Assessing Officer's Satisfaction for Initiating Penalty Proceedings:
The AO initiated penalty proceedings stating that the assessee furnished inaccurate particulars of income. However, the assessee contended that no concealment or furnishing of inaccurate particulars occurred, as all details were provided. The AO did not explicitly record satisfaction that the assessee concealed income or furnished inaccurate particulars, which is a prerequisite for imposing penalty. The Tribunal noted that the AO merely mentioned the initiation of penalty proceedings without a clear satisfaction, which is not sufficient for penalty imposition according to the legal precedents cited, including CIT Vs Reliance Petro Products Pvt. Ltd. and Ms. Madhushree Gupta Vs Union of India.

4. Consistency in the Application of Penalty Provisions Across Different Assessment Years:
The assessee argued that a similar claim was allowed in earlier years, and even in subsequent years, although the claim was disallowed, penalty proceedings were dropped. This inconsistency was highlighted to argue that the claim was made under a bona fide belief. The Tribunal agreed, noting that the penalty should not be levied when the claim is based on a consistent practice and all particulars were disclosed.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not leviable. The AO did not establish that the assessee concealed income or furnished inaccurate particulars. The assessee's claim, though disallowed, was made in good faith based on previous years' allowances, and all relevant details were disclosed. The Tribunal emphasized that making an incorrect claim does not tantamount to furnishing inaccurate particulars. Thus, the penalty was deleted, and the appeal was allowed.

Judgment:
The appeal by the assessee is allowed, and the penalty imposed under Section 271(1)(c) is deleted. The decision was pronounced in the court on 27/04/2015.