2018 (9) TMI 876 - HC - Income Tax

Penalty u/s 271(1)(c) - while computing deduction under Section 10B they had wrongly netted the interest earned on the income tax refund against the interest paid - Tribunal deleted the penalty - Held that - There is no dispute or debate that the respondent-assessee had specifically declared and stated in the income tax return that they had netted the interest received on the income tax refund from the interest paid for the purpose of computing deduction under Section 10B of the Act. Material facts were clearly disclosed, and not concealed and withheld. Tribunal has referred to the decision of MAK Data Private Limited versus CIT, (2013 (11) TMI 14 - SUPREME COURT) and CIT versus Zoom Communication Private Limited, (2010 (5) TMI 34 - DELHI HIGH COURT), to accept that assessee had discharged the onus to establish its bona fide while making claim for deduction/exemption under Section 10B of the Act by netting of interest received from Income Tax Department, from interest paid to the bank to make payment of tax to the Income Tax Department. There was a connect and link between the interest paid to the bank, which was business expenditure, and interest received from the Income Tax Department. Referring to factual matrix, the Tribunal has accepted the reasoning and finding given by the Commissioner of Income Tax (Appeals) that the conduct of assessee in netting of income received from interest paid was bonafide. The said finding is a finding of fact and no substantial question of law arises. No penalty to be levied - Decided in favour of assessee

Summary

Issues:
1. Penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 for netting interest earned on income tax refund against interest paid.
2. Discharge of onus under Explanation 1 to Section 271(1)(c) of the Act.

Analysis:
Issue 1: The appellant Revenue challenged the deletion of penalty imposed under Section 271(1)(c) by the Assessing Officer. The penalty was imposed due to the respondent-assessee netting the interest earned on an income tax refund against the interest paid, affecting the computation of deduction under Section 10B of the Act. The Tribunal dismissed the appeal, upholding the order of the Commissioner of Income Tax (Appeals) that the interest earned should have been treated as income from other sources, not eligible for deduction under Section 10B. The Tribunal accepted the respondent's argument that the interest was directly linked to the business income, as they were a 100% export-oriented unit with no other business income. The Tribunal referred to relevant case laws and concluded that the netting of interest was bona fide, leading to the deletion of the penalty.

Issue 2: The question of discharge or satisfaction of onus under Explanation 1 to Section 271(1)(c) was raised in the appeal. The respondent-assessee had declared the netting of interest in their income tax return, disclosing all material facts without concealment. The Tribunal, relying on Supreme Court and High Court decisions, held that the respondent had established the bona fide nature of their claim for deduction under Section 10B. The Tribunal found a clear link between the interest paid as a business expenditure and the interest received from the Income Tax Department. As the Tribunal accepted the reasoning and findings of the Commissioner of Income Tax (Appeals), stating that the conduct of the respondent in netting the income was bona fide, it was considered a finding of fact with no substantial question of law arising. Consequently, the Tribunal's decision to delete the penalty under Section 271(1)(c) was upheld by the High Court.

In conclusion, the High Court dismissed the appeal, finding no merit in challenging the Tribunal's decision to uphold the deletion of the penalty under Section 271(1)(c). The Court noted the factual background and the established link between the interest paid and received by the respondent-assessee, concluding that there was no basis for interference with the Tribunal's order.