2018 (10) TMI 793 - AT - Income Tax

Penalty under section 271(1)(c) - assessee had claimed interest expenses in contravention of the provisions of section 43B in the Return of Income - nature of mistake and quantum of accumulated and current losses - Bonafide mistake - Held that - The details about unpaid interest to the GIC were available from the material placed before the Assessing Officer by the assessee on his own. The assessee had accumulated brought forward losses of ₹ 3.36 crores and, in the current year itself, the assessee had incurred a loss of ₹ 2.25 crores which was claimed for a carry forward. The assessee had subsequently closed down the business and the matter was before Board for Industrial and Financial Reconstruction (BIFR). The assessee s claim of having missed adding back the inadmissible interest deduction on account of a bonafide and inadvertent mistake cannot be rejected as improbable. It is more of a silly mistake than an attempt to evade tax or furnish inaccurate particulars. The explanation of the assessee is thus a plausible explanation. We may also add that while examining the explanation of the assessee, one has to see is whether the explanation is an explanation acceptable to a fact finding authority and that while an assessee is not to prove the explanation to the hilt positively but, as a matter of fact, materials must be brought on record to show that what he says is reasonably valid. See COMMISSIONER OF INCOME-TAX, BIHAR VERSUS NATHULAL AGARWALA AND SONS 1985 (3) TMI 57 - PATNA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2004-05.
2. Justification of upholding the penalty of ?20,39,809.

Issue 1: The Assessing Officer challenged the correctness of the learned CIT(A)'s order upholding the penalty under section 271(1)(c) for the assessment year 2004-05. The appellant contended that the penalty was deleted despite the fact that the corresponding quantum addition was accepted by the assessee. The Assessing Officer imposed the penalty based on the inaccurate particulars of income furnished by the assessee, specifically related to interest expenses claimed in contravention of section 43B of the Act. The tribunal noted that the assessee had filed its return of income showing a loss and during scrutiny assessment, it was found that there was a default in repayment of dues to financial institutions, leading to a disallowance of certain interest expenses. The tribunal analyzed various legal precedents and held that the assessee had indeed furnished inaccurate particulars of income, justifying the penalty under section 271(1)(c).

Issue 2: The CIT(A) deleted the penalty levied under section 271(1)(c) based on the explanation provided by the appellant. The CIT(A) considered that the default in repayment of dues and the interest payable were disclosed in the tax audit report, and the disallowance was made based on this information. The CIT(A) found that the assessee had not concealed income or furnished inaccurate particulars, attributing the mistake to inadvertent human error. The tribunal further examined the background facts, including the closure of the appellant's business and the accumulated losses, to support the plausibility of the explanation provided by the assessee. Citing a Supreme Court judgment, the tribunal emphasized that the penalty imposition was not justified in this case, as the error was inadvertent and not an attempt to conceal income. The tribunal upheld the CIT(A)'s decision, stating that the explanation provided by the assessee was reasonable and declined to interfere in the matter.

In conclusion, the tribunal dismissed the appeal, affirming the CIT(A)'s decision to delete the penalty under section 271(1)(c) based on the reasonable explanation provided by the assessee and the absence of any deliberate attempt to conceal income or furnish inaccurate particulars.