2019 (4) TMI 262 - AT - Income Tax

Penalty u/s 271(1)(c) - excess claim of interest expenditure on loan for property - inadvertent bonafide mistake on the part of her accountant - assessee voluntarily filed with the A.O that aforesaid mistake of excess claim of deduction of interest expenditure to be added to her returned income - HELD THAT - we are of the considered view that now when the assessee in the course of the assessment proceedings had voluntarily admitted the mistake that had crept in her return of income , then merely for the reason that she could not undo/rectify the mistake in her Original return of income by filing a revised return of income would not justify levy of penalty under Sec. 271(1)(c) in her hands. It is neither the case of the revenue, nor a fact that the excess claim of deduction that was raised by the assessee was found to be a bogus claim that was raised in the thin air. Rather, as observed the aforesaid claim of interest expenditure raised by the assessee was in context of the loans which were raised by her for making of investments in other concerns. We thus in terms of our aforesaid observations are of a strong conviction, that though the disallowance made by the A.O at the behest of the assessee would though suffice for saddling her with additional tax liability, however, in the totality of the facts of the case no penalty under Sec.271(1)(c) on the said count could have validly been imposed on her. - Decided in favour of assessee.

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Consideration of evidence and facts regarding the inadvertent claim.
3. Applicability of legal precedents and CBDT guidelines.
4. Validity of notice issued under Section 274 read with Section 271(1)(c).
5. Justification for the disallowance of interest expenditure claimed.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The primary issue is whether the penalty under Section 271(1)(c) for furnishing inaccurate particulars of income was justified. The assessee had claimed a deduction for interest expenditure on borrowed capital, which was later found to be excessive due to a bona fide mistake by the accountant. The AO disallowed the excess claim and initiated penalty proceedings, which were upheld by the CIT(A). However, the Tribunal, after examining the facts, concluded that the excess claim was a result of an inadvertent error and not a deliberate attempt to furnish inaccurate particulars of income. The Tribunal noted that the assessee had voluntarily admitted the mistake during the assessment proceedings and requested the excess amount to be added back to her income.

2. Consideration of Evidence and Facts:
The Tribunal observed that the assessee had filed her return of income declaring a total income of ?10,39,140/-. During the assessment proceedings, the assessee voluntarily disclosed the mistake in her claim of interest expenditure and provided a revised statement of computation. The Tribunal found that the mistake was genuine and arose due to the inclusion of interest expenditure from another loan account, which was not related to the property in question. The Tribunal emphasized that the assessee's voluntary disclosure before any detection by the AO demonstrated her bona fides.

3. Applicability of Legal Precedents and CBDT Guidelines:
The assessee relied on the judgment of the Hon'ble Supreme Court in the case of Reliance Petro Products (P) Limited and other judicial precedents to argue that a bona fide mistake does not amount to furnishing inaccurate particulars of income. The Tribunal agreed with this contention and also referred to the CBDT circular and the judgment of the Hon'ble Bombay High Court in the case of Vijay Gupta Vs. CIT, which state that officers should not take advantage of an assessee's ignorance of their rights. The Tribunal concluded that the penalty was not warranted in this case.

4. Validity of Notice Issued under Section 274 Read with Section 271(1)(c):
The assessee contended that the notice issued under Section 274 read with Section 271(1)(c) was invalid as it did not specify the grounds for initiation of penalty proceedings. The Tribunal did not explicitly address this issue in its order but focused on the substantive aspect of whether the penalty was justified based on the facts and circumstances of the case.

5. Justification for the Disallowance of Interest Expenditure Claimed:
The Tribunal acknowledged that the disallowance of ?13,19,038/- was justified as the interest expenditure pertained to another loan account and was not related to the property. However, the Tribunal emphasized that the disallowance alone did not justify the imposition of penalty under Section 271(1)(c). The Tribunal noted that the excess claim was not a bogus claim but a result of a genuine mistake, and the assessee had voluntarily disclosed the error before any detection by the AO.

Conclusion:
The Tribunal concluded that the CIT(A) had wrongly upheld the penalty imposed by the AO under Section 271(1)(c). The Tribunal set aside the order of the CIT(A) and deleted the penalty of ?4,07,580/- imposed by the AO. The appeal of the assessee was allowed, and the order was pronounced in the open court on 15.01.2019.

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