2018 (11) TMI 691 - AT - Income Tax

Penalty u/s 271(1)(c) - violation of Section 13(1)(d) r.w.s. 13(3) and 11(5) - advances made to specified persons - interest free loan given - Held that - It is an admitted fact that the Auditor duly mentioned in the Audit Report u/s 12A(b) of the Act in Form No. 10B that the loans and advances had been provided to the persons referred to in Section 13(3) of the Act, so it was a good case for making the addition particularly when in the preceding year also, the interest was charged but it cannot be said that the assessee did not disclose all the particulars. However, it made a computation error in its return of income. We, therefore, by keeping in view the ratio laid down in the aforesaid referred to case of CIT Vs Pricewaterhouse Coopers Pvt. Ltd. 2012 (9) TMI 775 - SUPREME COURT , deem it appropriate to delete the impugned penalty levied by the AO and sustained by the ld. CIT(A). - Decided in favour of assessee

Issues Involved:
1. Sustenance of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the assessee furnished inaccurate particulars or concealed particulars of income.
3. Applicability of Explanation (1) to Section 271(1)(c) of the Income Tax Act, 1961.
4. Whether the omission to charge interest on loans and advances was a bona fide error.

Detailed Analysis:

1. Sustenance of Penalty Levied under Section 271(1)(c) of the Income Tax Act, 1961:
The primary grievance of the assessee was the sustenance of a penalty amounting to ?68,598/- levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The AO had noticed that the assessee provided interest-free loans and advances amounting to ?18.50 lakhs to persons specified under Section 13(3) of the Act. Consequently, the AO added notional interest of ?2,22,000/- (12% of ?18,50,000/-) to the income and initiated penalty proceedings under Section 271(1)(c).

2. Whether the Assessee Furnished Inaccurate Particulars or Concealed Particulars of Income:
The assessee contended that it neither furnished inaccurate particulars nor concealed particulars of its income since the advances given to specified persons were duly mentioned in the Audit Report. The AO, however, observed that as per Explanation (1) to Section 271(1)(c), there is a presumption that the amount added or disallowed is deemed to be the income in respect of which particulars had been concealed or inaccurate particulars had been filed. The AO concluded that the assessee’s case fell within the scope of furnishing inaccurate particulars and thereby concealing taxable income.

3. Applicability of Explanation (1) to Section 271(1)(c) of the Income Tax Act, 1961:
The CIT(A) observed that the deeming provisions of Explanation (1) to Section 271(1)(c) apply when:
i. The assessee fails to provide an explanation.
ii. The explanation provided is found to be false.
iii. The explanation is not substantiated, and the assessee fails to prove that it was bona fide and that all necessary facts were disclosed.

The CIT(A) noted that the loans were given to specified persons in the financial year 2009-10, and there was an increment in the loan amount over subsequent years. It was observed that once the case was selected for scrutiny, the interest-free loan was converted into a loan with 12% interest. The CIT(A) concluded that the assessee failed to substantiate its explanation and prove that it was bona fide, thus deeming the assessee to have concealed particulars of income liable for penalty under Section 271(1)(c).

4. Whether the Omission to Charge Interest on Loans and Advances was a Bona Fide Error:
The assessee argued that the omission to charge interest was an inadvertent mistake by the Auditor while computing the income. The Audit Report and balance sheet disclosed the advances, and there was no deliberate attempt to conceal particulars. The CIT(A) distinguished the case laws cited by the assessee and sustained the penalty.

Upon appeal, it was noted that the assessee disclosed particulars of loans and advances in the Audit Report and balance sheet. The explanation provided was that the omission was a computation error by the counsel. The Tribunal referenced the Supreme Court case of CIT Vs Pricewaterhouse Coopers Pvt. Ltd., which held that an inadvertent and bona fide error does not amount to furnishing inaccurate particulars or concealment of income.

The Tribunal concluded that the assessee made a computation error in its return of income, and there was no intention to conceal particulars. Therefore, the penalty under Section 271(1)(c) was not justified, and the appeal of the assessee was allowed.

Conclusion:
The Tribunal allowed the appeal, deleting the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, as the omission was deemed a bona fide and inadvertent error without any intention to conceal income or furnish inaccurate particulars.

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