2017 (12) TMI 1474 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - addition on account on account of difference of opinion - Held that - The admission or a rejection of a claim is a subjective matter and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income, what is a correct claim and what is incorrect claim is a matter of opinion. Raising a legal claim, even if it ultimately found to be legally unacceptable, cannot amount to furnishing of inaccurate particulars of income. A bonafide claim by the assessee being visited with penal consequences only because it has not been accepted by the tax authorities or judicial authorities, is an absurdity. In any event the connation of expression inaccurate particulars do not extent to the issues of interpretation of laws and as such making a claim, which is found unacceptable in law, cannot be treated as furnishing of inaccurate particulars of income. In this case, no information/figures in the return of income was found to be incorrect or inaccurate. The same was reflected in books of accounts. All books of accounts were maintained and Audited by the assessee. Only Notional interest was calculated and was disallowed from actual interest expenditure paid to bank. Disallowance was merely on account on account of difference of opinion and has nothing to do with concealment of income or furnishing of inaccurate particulars. It is clear that mere disallowance in the assessment proceedings could not be the sole basis for levying penalty u/s.271(1)(c). - Decided in favour of assessee.

Summary

Issues:
Confirmation of penalty u/s.271(1)(c) of the I.T. Act, 1961 by the appellant against the order of the Commissioner of Income Tax(Appeals) for the Assessment Year 2005-06.

Analysis:

Issue 1: Confirmation of Penalty
The appellant contested the penalty u/s 271(1)(c) stating no concealment or inaccurate particulars of income occurred. Grounds included lack of specificity in the penalty order and the appellant's bona fide explanation. Additionally, it was argued that no tax evasion occurred as per Explanation-4 to section 271(1)(c).

Issue 2: Assessment and Additions
The assessment finalized under section 143(3) revealed discrepancies in interest on loans, depreciation, interest on Excise Duty and sales Tax, and Escalation Claim. The CIT(A) confirmed some additions but not all. The appellant's explanations were scrutinized, especially regarding loans/advances and interest expenditure.

Issue 3: Disallowance of Interest Expenditure
The appellant's interest expenditure was disallowed due to the diversion of funds to a related party, deemed not for business purposes. The appellant's contentions regarding the funds and interest were refuted, leading to the conclusion that the appellant concealed income and furnished inaccurate particulars.

Issue 4: Penalty Imposition
The penalty was levied based on the disallowed interest expenditure. The assessing officer calculated the penalty amount, which was confirmed by the CIT(A). However, the Tribunal found that the disallowance did not amount to concealment or furnishing inaccurate particulars, leading to the deletion of the penalty.

Conclusion
The Tribunal, after reviewing the facts and circumstances, determined that the disallowed interest expenditure did not constitute concealment or inaccurate particulars of income. The penalty was deemed unjustified, and the appeal was allowed, resulting in the deletion of the penalty imposed under section 271(1)(c) of the I.T. Act, 1961.