2017 (4) TMI 168 - AT - Income Tax

Penalty u/s 271(1)(c) - non application of mind - notice between charge and approval given by the higher authorities of the penalty order - Held that - As perused the letter dated 28/03/2012 issued by the joint Commissioner of income tax, range 37, New Delhi to the assessing officer approving the penalty order. On reading of the above letter, it is apparent that the assessee has sent the penalty order for approval which was received on 27th of March 2012 by the Ld. at joint Commissioner of income tax and who has granted approval. It is also apparent from reading of the letter that the Ld. assessing officer has sent the draft assessment order along with the assessment records to the Ld. at joint Commissioner of income tax, who approved the same as well as also instructed the assessing offer officer. Regarding timely services of the order returning the assessment records and is also directed him to submit a copy of the order to his office. The approval means confirmation, ratification, or assent to some action or thing done by another, which is submitted to. It may not be said in so many words, but it can also be inferred by the conduct of the higher authorities. Therefore it cannot be said that the deponent granted by the higher authorities without application of mind and is a nonspeaking order when same as been granted after perusal of the order as well as on verification of the records. Hence, we also reject the contention of the Ld. AR that the approval granted by the higher authority is by a nonspeaking order and without application of mind. Disallowance of interest u/s 234A and 234C applying provisions of section 40a (ii) - Held that - While interpreting the provisions of section 2 (43) of the income tax act and has held that from a reading of Section 2(43) of the Act it is clear that tax under the Act does not include penalty and interest. Therefore it can be a plausible argument that the provisions of section 40a(ii) do not include the payment of interest under section 234B and 234C of the income tax act. Furthermore identical situation prevails under section 249 (4) (a) as well as provisions of section 221 of the income tax act. However, the courts have held that tax dues‟ does not include interest and penalty. Therefore it can be possibly argued that if the tax dues‟ does not include interest and penalty then how the word tax‟ can include the interest and penalty. The above, you can also be examined with respect to the provisions of section 209 of the income tax act. It provides for the payment of advance tax and after that there are other specific provisions that if the advance tax is not paid in accordance with the scheme of the act then assessee are liable for payment of interest under the provisions of section 234A, 234B, 234C of the income tax act. In the tax audit report also the tax auditor has also mentioned the amount is allowable as Rs. nil though the claim of the assessee was on the face of the profit and loss account Therefore according to us during the course of penalty proceedings as well as during the course of assessment proceedings the assessee has made a claim, which is one of the arguable claims, but assessee in its own wisdom, withdrawn that claim During the course of assessment proceedings itself, but it cannot be said that the claim of the assessee was wrong or false. Therefore according to us, for the reasons mentioned above, penalty under section 271 (1) ( c) of the act cannot be levied on claim of the assessee for not disallowing interest on income tax under section 40 a(ii) of the income tax act and thereby claiming deduction of interest under section 234B and 234C of the income tax act, which was withdrawn during the course of assessment proceedings. In the result we set aside the order of the penalty - Decided in favour of assessee

Issues Involved:
1. Legality of penalty under section 271(1)(c) of the Income Tax Act.
2. Interpretation of "tax" under section 2(43) and its applicability under section 40a(ii) of the Income Tax Act.
3. Adequacy of disclosure and the nature of the claim made by the assessee.
4. Procedural aspects related to issuance of show cause notice and approval of penalty order.

Detailed Analysis:

1. Legality of Penalty under Section 271(1)(c):
The primary issue was whether the penalty levied under section 271(1)(c) for the disallowance of ?37,52,043/- as interest on income tax was justified. The assessee argued that the claim was made in good faith and based on a plausible interpretation of the law. The penalty was contested on the grounds that mere making of an unsustainable claim does not amount to furnishing inaccurate particulars or concealment of income. The Tribunal agreed, referencing the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd. which held that merely making a claim which is not sustainable in law does not amount to furnishing inaccurate particulars.

2. Interpretation of "Tax" under Section 2(43) and Applicability under Section 40a(ii):
The assessee contended that "tax" as defined under section 2(43) does not include interest, and thus, interest on income tax should not be disallowed under section 40a(ii). The Tribunal referred to various judicial precedents, including the Allahabad High Court's decision in Pratibha Garg vs. CIT, which supported the view that "tax" does not encompass interest and penalty. This interpretation was deemed plausible, and the Tribunal found that the assessee's claim was not prima facie untenable.

3. Adequacy of Disclosure and Nature of the Claim:
The assessee had disclosed the interest paid on income tax as a separate line item in the profit and loss account, indicating full transparency. The Tribunal noted that the claim was withdrawn during the assessment proceedings to avoid litigation and maintain peace with the Department. The Tribunal emphasized that full disclosure was made, and the claim was arguable, not false or mala fide. Thus, the penalty for furnishing inaccurate particulars was not warranted.

4. Procedural Aspects:
The Tribunal addressed the procedural contention regarding the issuance of the show cause notice containing twin charges (concealment of income and furnishing inaccurate particulars) without striking off the inapplicable one. It was argued that this ambiguity invalidated the penalty. However, the Tribunal found that the assessee had responded to both charges, indicating awareness and opportunity to contest. The approval of the penalty order by the Joint Commissioner was also scrutinized. The Tribunal concluded that the approval process was valid, as the Joint Commissioner had reviewed the draft order and assessment records before granting approval.

Conclusion:
The Tribunal allowed the appeal, setting aside the penalty imposed under section 271(1)(c). It was determined that the assessee's claim, though ultimately unsustainable, was made in good faith based on a plausible interpretation of the law, and full disclosure was made in the return of income. The procedural objections raised by the assessee were also rejected, affirming the validity of the penalty proceedings. The order of the CIT(A) confirming the penalty was reversed, and the penalty was annulled.

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