2019 (5) TMI 1267 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowance of interest u/s 24(b) - HELD THAT - As per the return of income and as per the assessment order, there is no difference in the rent receipt and the municipals tax paid but only difference is on account of interest. The expenses u/s 24(a)/ 24(b) as per the return of income is ₹ 10,43,827/- whereas as per the Assessment Order such amount is ₹ 6,80,443/-. Even the interest u/s 24(a) as per the return of income and as per the Assessment Order is same. The only difference is in the interest calculated as per Section 24(b) which as per the return of income is ₹ 5,81,047/- where as per the Assessment Order the same is 2,46,662/- All particulars were given and there is no concealment as such which in my opinion warrants levy of penalty/s 271(1)(c). The Hon'ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT has held that a mere making of a claim which is not sustainable in law cannot by itself will amount to furnishing inaccurate particulars regarding the income of the assessee. Further, when the assessee has declared income of ₹ 5,00,971/- and the A.O completed the assessment on a at total income at ₹ 8,62,157/-, fail to understand as to how and why the penalty has been levied by the A.O on the assessed income at ₹ 8,62,157/- instead of the difference of ₹ 3,63,584/- being excess interest claimed as per u/s 24(b) . This shows that the A.O has not applied his mind. Although, the CIT(A) has considered the same and sustained penalty, however, the same in my opinion is not justified. Full particulars were given and nothing was hidden from the Department and the disallowance of interest of ₹ 3,63,584/- was on estimated basis, therefore, it is not a fit case for levy of penalty u/s 271(1)(c). Therefore, set aside the order of the CIT(A) and direct the A.O to cancel the penalty. The grounds raised by the assessee are accordingly allowed.

Summary

Issues Involved:
Levy of penalty under section 271(1)(c) of the Income Tax Act based on additions made during assessment.

Detailed Analysis:

Issue 1: Levy of Penalty
The appeal was against the order of the CIT(A) upholding the penalty of ?2,70,000 imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act. The AO had completed the assessment at a total income higher than the one declared by the assessee, leading to additions and subsequent penalty proceedings. The CIT(A) upheld the penalty, citing intentional reduction in taxable income by the assessee as concealment of income, making it eligible for penalty under section 271(1)(c).

Analysis:
The CIT(A) observed that the appellant had intentionally inflated deductions to lower taxes, resulting in concealment of income. The AO had levied the penalty on the total assessed income without adjusting for the returned income, which was deemed incorrect. The CIT(A) directed the AO to recompute the penalty based on the sustained addition of ?3,63,384. The appellant argued against the penalty, claiming no concealment as the disallowed interest was estimated. However, the CIT(A) dismissed the appellant's grounds and upheld the penalty.

Issue 2: Tribunal's Decision
The Tribunal considered the arguments presented by both sides. The appellant contended that full details were disclosed, and no concealment occurred, as the disallowance of interest was based on estimates. The Tribunal noted that there was no discrepancy in most of the declared income and expenses, except for the interest under section 24(b). Referring to the Supreme Court's decision, the Tribunal emphasized that a mere unsustainable claim does not constitute furnishing inaccurate particulars. The Tribunal found the penalty unjustified, as the AO had not applied proper assessment in levying the penalty on the assessed income instead of the excess interest claimed under section 24(b).

Analysis:
The Tribunal concluded that since full particulars were disclosed, and the disallowance was estimated, the penalty under section 271(1)(c) was unwarranted. It highlighted the AO's failure to consider the difference in excess interest claimed while imposing the penalty. Therefore, the Tribunal set aside the CIT(A)'s order and directed the AO to cancel the penalty, allowing the appellant's grounds.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of proper assessment and disclosure of accurate particulars to determine the applicability of penalties under the Income Tax Act.