2016 (10) TMI 976 - HC - Income Tax

Penalty u/s 271(1)(c) - inaccurate particulars intending to evade taxes by not adding back an amount u/s 43B - Held that - We find that there are concurrent findings of fact by the CIT(A) as well as the Tribunal that the mistake in not adding back the interest not paid on advances and loans to the income during the subject assessment years was a bona fide mistake. This mistake, it held, was on account of the fact that the amendment to Section 43B(e) of the Act requiring the actual payment of interest on loans and advances came into force only w.e.f. 1st April, 2004. The Apex Court in Price Waterhouse Coopers (P) Ltd. Vs. Commissioner of Income Tax, (2012 (9) TMI 775 - SUPREME COURT ), held that the penalty should not be imposed where the error / mistake is bona fide, to which we are all susceptible.- Decided in favour of assessee

Summary

Issues:
Challenge to order under Section 260A of the Income Tax Act, 1961 regarding penalty cancellation under section 271(1)(c) for Assessment Year 2004-05.

Analysis:
1. The main issue in this case was whether the Tribunal was correct in upholding the decision of the CIT(A) canceling the penalty under section 271(1)(c) of the Income Tax Act. The appellant challenged the order passed by the Tribunal for Assessment Year 2004-05.

2. The respondent assessee had claimed expenditure on bank interest during the assessment year, adding back a portion as required by Section 43B(e) of the Act. However, the Assessing Officer added a further amount to the income as interest payable on loans and advances, leading to penalty proceedings against the assessee.

3. The CIT(A) upheld the Assessing Officer's order in the quantum proceedings due to an amendment in Section 43B(e) of the Act, which substituted "term loans" with "loans and advances." The respondent accepted this decision.

4. In the penalty proceedings, the respondent explained that the failure to add back the amount was a genuine mistake due to the recent amendment. The Assessing Officer imposed a penalty, which was challenged by the respondent in appeal to the CIT(A).

5. The CIT(A) found that the mistake was bona fide as the amendment postdated the relevant period, and the respondent had already disallowed interest on term loans not paid. The appeal was allowed in favor of the respondent.

6. The Revenue appealed to the Tribunal, which accepted the explanation of the respondent regarding the mistake being bona fide due to the recent amendment and lack of audit observation. The Tribunal dismissed the Revenue's appeal.

7. The High Court noted the concurrent findings of fact by the CIT(A) and the Tribunal that the mistake was genuine, given the timing of the amendment. Referring to a Supreme Court decision, the High Court emphasized that penalties should not be imposed for bona fide mistakes.

8. Considering the consistent findings and absence of perversity, the High Court concluded that no substantial question of law arose from the proposed question. The appeal was dismissed, and no costs were awarded.

This detailed analysis covers the issues involved in the legal judgment, highlighting the key arguments, decisions, and reasoning provided by the authorities involved in the case.