2016 (11) TMI 355 - AT - Income Tax

Penalty under section 271(1)(c) - Held that - Assessee made entire disclosure in respect of its claim of expenditure and no false or incorrect particulars have been filed by the assessee. The assessee has also filed explanation for the claim made by it and which is not a malafide. Similarly, the assessee furnished all particulars in respect of claim of interest of ₹ 36 lacs related to loan of ₹ 2 crores from the Indian Air Force Benevolent Fund (IAFBF), however, the interest was disallowed due to dispute of the quantification of the amount in the year. In respect of the claim of loss on the sale of the factory shade and on account of stock and machinery we find that it was duly disclosed and appropriate note was given to the notes to the account to balance sheet. The Assessing Officer has not unearthed any new fact from his independent sources which could lead to furnishing of inaccurate particulars by the assessee. Similarly, all details of bad debt were available on the record. We find that the assessee has disclosed all facts regarding interest and other claims in the audited accounts and complete disclosure was made in notes to accounts and full explanation was furnished during the assessment proceedings and the explanation furnished are found to be bonafide. Also during the period the director of the company was under arrest and the company did not have any qualified persons to compile the return as per law and, therefore, even the interest written back credited to the profit and loss account was not withdrawn in spite of the clear mandate of section 41 (1) of the Act that such written back was not taxable - Decided in favour of assessee

Summary

Issues Involved:
1. Applicability of Section 271(1)(c) read with Section 275 of the Income-tax Act, 1961.
2. Confirmation of penalty levied by the Assessing Officer (A.O.).
3. Allegation of concealment or filing of inaccurate particulars of income by the assessee.
4. Impact of a bona fide claim disallowed during assessment on penalty imposition.
5. Relevance of the assessed loss being higher than the returned loss in determining concealment of income.
6. Allegation of inflated interest liability by the Commissioner of Income Tax (Appeals).
7. Allegation of tax evasion by making wrong claims by the Commissioner of Income Tax (Appeals).

Detailed Analysis:

1. Applicability of Section 271(1)(c) read with Section 275:
The assessee contended that the provisions of Section 271(1)(c) read with Section 275 were not applicable. The Tribunal examined whether the assessee furnished inaccurate particulars of income or concealed income. It was found that the assessee disclosed all material facts in the return of income and the financial statements, and the explanation provided was bona fide. Therefore, the penalty under Section 271(1)(c) was deemed not applicable.

2. Confirmation of Penalty Levied by the A.O.:
The Commissioner of Income Tax (Appeals) confirmed the penalty levied by the A.O. on various additions/disallowances. However, the Tribunal found that the assessee had disclosed all relevant facts and that the additions were due to differences in opinion or estimation. The Tribunal held that no penalty should be levied as the details supplied by the assessee were not found to be incorrect or erroneous.

3. Allegation of Concealment or Filing of Inaccurate Particulars:
The Tribunal noted that the assessee had disclosed all particulars regarding the claims made in the return of income. The explanation provided by the assessee was not found to be false or malafide. The Tribunal referenced the Supreme Court's decision in Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts (P) Ltd, which held that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars of income.

4. Impact of a Bona Fide Claim Disallowed During Assessment:
The Tribunal acknowledged that the assessee made bona fide claims, which were disallowed during the assessment proceedings. It was held that such disallowance does not attract penalty under Section 271(1)(c) as long as the claims were made in good faith and with full disclosure.

5. Relevance of Assessed Loss Being Higher Than Returned Loss:
The assessee argued that since the assessed loss was higher than the returned loss, there was no attempt to evade tax. The Tribunal agreed, stating that the assessed loss being higher than the returned loss indicated no concealment of income, thus negating the basis for penalty imposition.

6. Allegation of Inflated Interest Liability:
The Commissioner of Income Tax (Appeals) alleged that the assessee had inflated the interest liability. The Tribunal found that the assessee had disclosed all particulars regarding the interest claimed and provided a bona fide explanation. Therefore, the Tribunal held that there was no basis for the allegation of inflated interest liability.

7. Allegation of Tax Evasion by Making Wrong Claims:
The Commissioner of Income Tax (Appeals) alleged that the assessee sought to evade tax by making wrong claims. However, the Tribunal found that the assessee had disclosed all material facts and provided explanations for the claims made. The Tribunal held that making claims that are disallowed does not constitute tax evasion if the claims were made in good faith.

Conclusion:
The Tribunal concluded that no penalty under Section 271(1)(c) was leviable in respect of the additions/disallowances made. The appeal of the assessee was allowed, and the penalty levied by the A.O. was deleted. The decision was pronounced in the open court on 20th September 2016.