2017 (4) TMI 1446 - AT - Income Tax

Penalty u/s 271(1)(c) - addition for non-compliance with Sec. 40(a)(ia) - HELD THAT - CIT(A) made no mistake in deleting the penalty inasmuch as she has recorded a categorical finding that there was no concealment or furnishing of inaccurate particulars of income though the claim for deduction of expenditure of interest was otherwise found disallowable. According to the CIT(A) no particulars regarding the claim furnished by the assessee were found to be inaccurate or erroneous. According to the CIT(A) it is merely a case where the claim made by the assessee has been denied and that too on the basis of non-compliance with Sec. 40(a)(ia) of the Act which was only a technical default by the assessee. The discussion made by the CIT(A) clearly brings out that the attributes required for imposition of penalty u/s 271(1)(c) of the Act in the present case are missing and therefore the penalty has been rightly deleted by her. Accordingly the order of CIT(A) is hereby affirmed and Revenue fails in its appeal.

Summary

Issues:
Penalty under section 271(1)(c) for disallowance of interest expense under section 40(a)(ia) of the Income Tax Act, 1961.

Detailed Analysis:

1. Issue of Penalty Imposition:
The appeal concerned the imposition of a penalty under section 271(1)(c) of the Income Tax Act for the disallowance of interest expenses under section 40(a)(ia). The Assessing Officer had levied a penalty of ?14,34,660, equivalent to 100% of the tax sought to be evaded, due to the disallowance of interest expenses where tax was not deducted at source. The CIT(A) deleted the penalty, prompting the Revenue's appeal.

2. Legal Considerations:
The CIT(A) based the deletion of penalty on various legal precedents. Citing the case of M/s Hindustan Steel Ltd vs State of Orissa, it was emphasized that penalties should not be imposed mechanically but after careful consideration of all facts and circumstances. Additionally, the conditions for penalty under section 271(1)(c) were discussed, requiring concealment or furnishing inaccurate particulars of income.

3. Precedents and Interpretations:
The judgment referred to several cases to support the decision. In the case of Reliance Petroproducts P. Ltd., it was highlighted that making an incorrect claim in law does not equate to furnishing inaccurate particulars. The case of VIP Industries Ltd emphasized that the penalty provision cannot be invoked unless specific conditions are met, such as concealment of income or furnishing inaccurate particulars.

4. Analysis of CIT(A)'s Decision:
The CIT(A) found that the appellant had not concealed any particulars or furnished inaccurate information regarding the interest payments. The claim for deduction was denied based on non-compliance with the law, not due to inaccurate particulars. The CIT(A) concluded that the penalty conditions were not met, as all material facts were disclosed to the Assessing Officer.

5. Judgment and Decision:
The Tribunal upheld the CIT(A)'s decision to delete the penalty. It was emphasized that the claim denial was due to a technical default and not an attempt to conceal income. The Tribunal agreed that the penalty was rightly deleted as the necessary conditions for penalty imposition were not fulfilled. Consequently, the Revenue's appeal was dismissed, affirming the CIT(A)'s order.

In conclusion, the Tribunal's decision highlighted the importance of meeting specific criteria for penalty imposition under section 271(1)(c) and emphasized that mere claim denials based on technical defaults do not warrant penalties for concealment or furnishing inaccurate particulars of income.