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2018 (2) TMI 1711 - HC - Income TaxPenalty under Section 271 (1)(c) - Non accounting for interest receivable as well as interest payable in respect of the amalgamating companies - Held that - Respondent-Assessee had bona fide taken policy decision of not accounting for interest receivable as well as interest payable in respect of the amalgamating companies. This claim of not accounting for interest, was made on full disclosure and on the basis of policy decision. This also resulted in the Respondent-Assesssee not taking the benefit interest expenditure, thus, resulting in higher taxable income. Moreover, non-acceptance of the claim of the Assessee, by the Revenue would not by itself lead to penalty as held by the Apex Court in CIT v/s. Reliance Petrochemicals Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee.
Issues:
Challenge to penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2009-10 based on non-accounting of accrued interest on loans by a Non-Banking Financial Company (NBFC). Detailed Analysis: Issue 1: Challenge to Penalty Imposed The appeal challenged the order of the Income Tax Appellate Tribunal (the Tribunal) which set aside the penalty imposed under Section 271(1)(c) of the Act for the Assessment Year 2009-10. The Revenue questioned whether the Tribunal was justified in holding that the assessee had not furnished inaccurate particulars of income or concealed its income due to non-accounting of accrued interest on loans. Issue 2: Assessment and Penalty Proceedings The Assessing Officer added the accrued interest income of ?76.22 lakhs to the assessee's income in the assessment proceedings. The penalty proceedings under Section 271(1)(c) of the Act were initiated based on this addition. The assessee did not challenge the assessment order, accepting the addition in quantum proceedings. Issue 3: Explanation by the Assessee The assessee, a Non-Banking Financial Company, explained that it had not recognized the accrued interest income due to ongoing negotiations with borrowers and lenders of amalgamating entities to determine new terms. The Notes on Accounts clearly stated the policy decision not to recognize interest receivable until negotiations were finalized. The Assessing Officer, however, imposed a penalty, alleging inaccurate particulars of income. Issue 4: Tribunal's Decision The Tribunal considered the accounting policy adopted by the assessee and noted that the interest income was not accounted for based on full disclosure and a valid policy decision. It found the explanation valid and deleted the penalty under Section 271(1)(c) of the Act. The Tribunal emphasized that non-acceptance of the assessee's claim by the Revenue does not automatically lead to a penalty, citing a relevant court precedent. Issue 5: Judicial Findings The High Court upheld the Tribunal's decision, emphasizing the assessee's bona fide policy decision not to account for interest income. It highlighted that the non-acceptance of the claim by the Revenue alone does not warrant a penalty, citing legal precedent. The Court concluded that the question raised did not give rise to any substantial question of law and dismissed the appeal without costs. In conclusion, the High Court upheld the Tribunal's decision to delete the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, emphasizing the validity of the assessee's explanation and policy decision regarding the non-accounting of accrued interest income on loans.
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