2015 (10) TMI 2165 - AT - Income Tax

Penalty under section 271(1)(c) - failure to include interest income on account of refund under section 244A in the income tax return - Held that - On appeal, the assessee has filed a statement of fact, running into four lines. In the last line, it has pleaded that submissions dated 16.1.2013 has not been considered by the AO before levy of penalty. The ld.CIT(A) has also failed to take cognizance of this aspect. Assessee pleaded that neither we have been informed by issuing any notice of adjustment U/s 245 nor any amount of refund issued through Bank. It was internally adjusted against the demand of previous years which we have been informed by A.O. during proceeding. As soon as been informed regarding refund & interest thereon, we immediately agreed to add interest part in our income and requested to provide copy of refund order &demand adjustment letter. As requested to A.O during the penalty proceeding that we have not been knowledge of refund interest and also we have been not received till the date any letter of demand adjustment or refund order for the A.Y. 2007-08 & 2009-10 however he has not considered our view and ordering penalty u/s. 271(1)(c). As the ld.First Appellate Authority has not considered this specific plea of the assessee First Appellate Authority has erred in confirming the penalty - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the Income Tax Act for non-disclosure of interest income on refund.

Analysis:
1. Issue of Penalty Confirmation: The appellant contested the penalty imposed by the AO under section 271(1)(c) for not declaring interest income on refunds in the income tax return. The AO initiated penalty proceedings after observing the non-disclosure of interest income amounting to &8377; 2,41,42/-. The appellant argued that the refund was internally adjusted without explicit notice or communication, and upon becoming aware, they agreed to include the interest income. The AO issued notices for penalty, but the appellant claimed they were not informed about the interest income or received any adjustment letters. The AO imposed a penalty of &8377; 75,000/-, which the appellant contested on the grounds of lack of knowledge and absence of intent to conceal income.

2. Appellate Proceedings: The appellant appealed to the CIT(A), submitting that the AO did not consider their explanation before levying the penalty. The CIT(A) upheld the penalty, stating that the appellant failed to discharge the burden of providing a plausible and satisfactory explanation. However, the appellant reiterated that they were unaware of the interest income until informed by the department and promptly agreed to include it in their income upon notification. The CIT(A) and the AO did not consider this aspect, leading to the conclusion that the appellant was not guilty of concealing income or furnishing inaccurate particulars.

3. Judgment and Relief: The ITAT, after careful consideration of the submissions and records, found merit in the appellant's argument. They noted that the appellant promptly agreed to include the interest income upon being informed, indicating no intent to conceal income. The ITAT held that the penalty was unjustified, as the appellant acted in good faith and rectified the omission upon notification. Consequently, the ITAT allowed the appeal, thereby overturning the penalty imposed by the AO and confirmed by the CIT(A).

In conclusion, the ITAT ruled in favor of the appellant, emphasizing that the penalty under section 271(1)(c) was unwarranted due to the appellant's prompt rectification of the non-disclosure upon notification.