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2015 (10) TMI 233 - AT - Income TaxPenalty u/s.271(1)(c) - ACIT while imposing penalty held that exemption u/s.10(14) in respect of interest on NRE deposits is available only to non-resident Indians. Whereas, the assessee is resident. He further held that ignorance of law cannot be excused. The non-disclosure of income is deliberate on the part of the assessee - Held that - The assessee has not disclosed interest from Fixed Deposits in his return of income for the AY under consideration. The assessee had made investment in NRE Fixed Deposits from his NRE SB A/c in the year 2002. During that period, the assessee was sent on a particular assignment by the employer company to US. The assessee was allegedly under bonafide impression that since the deposits are made from NRE A/c, the interest income there from is exempt u/s.10(4), even though the assessee had returned to India and was a resident in India. The FERA, 1973 has been repealed and has been replaced with FEMA, 1999. The corresponding provisions contain in section 2(q) defining person resident outside India in FERA, 1973 are contained in section 2(w) of FEMA, 1999. The person resident outside India and persons resident in India as defined under FEMA, 1999. In the present case, we find that the assessee has not offered interest income for tax due to wrong interpretations of the provisions of the Act and not on account of deliberate concealment of income or furnishing inaccurate particulars of such income. The assessee was under bonafide impression that he is a person resident outside India as defined under FEMA. The explanation furnished by the assessee in not disclosing the interest income in the return appears to be quite genuine. We do not agree with the findings of the authorities below that the explanation furnished by the assessee is not covered by Clause(B) of Explanation-1 to Section 271(1)(c) of the Act. After examining chronology of events and documents on record, we are satisfied that the explanation furnished by assessee is bonafide and acceptable. - Decided in favour of assessee.
Issues:
1. Appeal against penalty order u/s.271(1)(c) of the Income Tax Act, 1961. 2. Interpretation of legal provisions regarding tax exemption on interest income from NRE Fixed Deposits. 3. Determination of residency status under FEMA, 1999 for tax purposes. 4. Bonafide belief of the assessee in not disclosing interest income. 5. Application of Clause(B) of Explanation-1 to Section 271(1)(c) of the Act. Analysis: 1. The appeal was filed against the penalty order u/s.271(1)(c) of the Income Tax Act, 1961, for the Assessment Year 2009-10. The assessee, a Sr. Software professional, had transferred a significant sum from an NRE Fixed Deposit account to a bank account, which was not declared in the income tax return. The penalty was imposed due to the non-disclosure of interest income received on the Fixed Deposits. 2. The Assessing Officer taxed the interest received on Fixed Deposits, stating that the exemption u/s.10(14) of the Act for interest on NRE deposits is only available to non-resident Indians, not residents. The assessee argued that the investment was made from NRE account, believing the interest income was exempt u/s.10(4) of the Act. The contention was that the non-disclosure was due to misinterpretation of legal provisions, not deliberate concealment. 3. The residency status of the assessee was crucial. The assessee believed he was a 'resident outside India' under FEMA, 1999, due to uncertainty about staying in India permanently. The Tribunal examined the definitions of 'person resident in India' and 'person resident outside India' under FEMA, 1999 to determine the assessee's residency status during the relevant period. 4. The Tribunal found that the assessee's non-disclosure of interest income was based on a bonafide belief that he was a 'person resident outside India' as per FEMA, not deliberate concealment. The assessee's explanation was considered genuine, as the belief was supported by the circumstances of the foreign assignment and the bank not deducting TDS on interest income. 5. The Tribunal disagreed with the lower authorities, concluding that the assessee's explanation fell under Clause(B) of Explanation-1 to Section 271(1)(c) of the Act. The Tribunal accepted the bonafide nature of the explanation and set aside the penalty order, allowing the appeal of the assessee. This detailed analysis highlights the key legal and factual aspects considered in the judgment, addressing the issues raised in the appeal comprehensively.
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