2016 (7) TMI 841 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowance of interest - Held that - The issue is squarely covered in favour of the assessee by the decision of Hon ble Apex Court in the case of Reliance Petroproducts Pvt.Ltd. (2010 (3) TMI 80 - SUPREME COURT) wherein held a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. The ratio of above decision of Hon ble Apex Court would be squarely applicable to the facts of the assessee s case. The assessee has disclosed all material facts and, admittedly, the details supplied by the assessee in its return of income are not found to be incorrect or erroneous or false. Accordingly, we, respectfully following the above decision of Hon ble Apex Court, hold that no penalty u/s 271(1)(c) of the Act is leviable in respect of disallowance of interest - Decided in favour of assessee. Difference in the disclosure of receipt as per TDS certificate and books of account - Held that - No satisfactory explanation is given by the assessee s counsel. The only explanation was that the difference is meager and that the same is a clerical error. We are unable to accept such explanation and therefore sustain the penalty levied in respect of difference in the receipt. We, therefore, direct the Assessing Officer to calculate the penalty at the rate of 100% of the tax sought to be evaded on the difference in the receipt shown in the TDS certificate and as shown in the books of account - Decided against assessee.

Summary

Issues:
- Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2009-10.

Analysis:
1. Capitalization of Interest:
- The Assessing Officer levied a penalty for disallowance of interest amounting to &8377; 9,42,000 and &8377; 1,50,980, which was capitalized. The appellant argued that no money was borrowed for the purpose of investment in the plot or construction of the building. The appellant's own funds exceeded the investment amount, and the interest-free funds were more than five times the investment. Citing a recent High Court case, the appellant contended that the disallowance of interest was not justified. The appellant accepted the assessment order due to tax neutrality but argued that penalty proceedings are separate and independent. The appellant relied on a Supreme Court decision to support that no penalty should be charged if no false information was provided.

2. Difference in Receipt Disclosure:
- The difference in the receipt as per TDS certificate and books of account was considered a clerical error by the appellant. The appellant argued that the amount was insignificant and did not warrant a penalty under section 271(1)(c). However, the Department argued that the appellant's actions fell within the ambit of furnishing inaccurate particulars of income, citing relevant case laws to support their stance.

3. Judgment:
- The Tribunal analyzed the provisions of Section 36(1)(iii) regarding the deduction of interest paid in respect of capital borrowed for business purposes. Despite the disallowance of interest by the Assessing Officer, the Tribunal found that the appellant's disclosure of material facts was accurate, and no penalty under section 271(1)(c) was justified for the disallowed interest amounts. However, the Tribunal upheld the penalty for the difference in receipt disclosure, directing the Assessing Officer to calculate the penalty at the rate of 100% of the tax sought to be evaded due to the discrepancy. The appeal was partly allowed, with the decision pronounced on 13.07.2016.