2017 (10) TMI 586 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - netting of interest on account of interest on income tax refund - Held that - Assessee had furnished and disclosed the entire particulars of the claim for netting of the interest and also the said claim was backed by the aforesaid note. First appellate authority had allowed the netting-off of the interest, while computing the profits of business eligible for deduction u/s 10B. This order of the first appellate authority has been reversed by the Tribunal by holding that interest receipt from the department on the income tax refund, does not have any direct nexus with the business of the assessee and it cannot be linked with the business of the assessee. Therefore, it cannot be netted off with the other interest payment. Though this issue has been decided against the Tribunal in the quantum proceedings, however, in the penalty proceedings, one has to see, whether at the time of making the claim at the time of filing of return of income the assessee had any bonafide belief based on certain judicial precedence or not. Here in this case, such a bonafide belief has been accentuated by the fact that the Ld. CIT (Appeals) had allowed such netting off and decided the issue in favour of the assessee. Under these facts it cannot be held that the assessee had furnished any inaccurate particulars of income so as to warrant levy of penalty u/s 271(1)(c) read with Explanation 1. Appeal filed by the revenue is dismissed.

Summary

Issues Involved:
Levy of penalty under section 271(1)(c) for filing inaccurate particulars of income related to interest on Income Tax Refund as income derived from export activities under section 10B for A.Y. 2002-03.

Detailed Analysis:

Issue 1: Claim of Deduction u/s 10B on Interest Income:
The assessee, a 100% Export Oriented Unit, claimed deduction u/s 10B by netting interest earned on Income Tax Refund against interest paid. The Assessing Officer held that interest income cannot be netted as it falls under 'income from other sources.' The CIT(A) allowed the netting off, but the Tribunal reversed the decision, holding the interest earned on refund is not eligible for deduction u/s 10B.

Issue 2: Penalty Imposition for Netting Interest Amount:
The Assessing Officer imposed a penalty under section 271(1)(c) for netting interest received on Income Tax Refund against bank interest paid. The CIT(A) deleted the penalty, emphasizing the adequate disclosure of the claim in the return notes and the absence of concealment or furnishing of inaccurate particulars. The Tribunal affirmed the deletion, citing the bona fide belief of the assessee based on judicial precedents and the previous acceptance of the claim in quantum proceedings.

Judicial Precedents and Arguments:
The Revenue relied on various judgments to support the penalty imposition, emphasizing that interest on Income Tax Refund cannot be considered income from business activities. The assessee argued that the claim was based on genuine belief supported by judicial precedents and previous acceptance by the CIT(A). The Tribunal upheld the deletion of the penalty, considering the bona fide belief of the assessee and the disclosure of claim particulars.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty imposed under section 271(1)(c) for netting interest on Income Tax Refund. The decision was based on the genuine belief of the assessee, adequate disclosure of claim particulars, and previous acceptance of the claim in quantum proceedings. The Tribunal held that the assessee did not furnish inaccurate particulars warranting the penalty.