2019 (9) TMI 492 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) r.w. s 274 - disallowance of interest expenditure - HELD THAT -Assessee has filed complete particulars of income before the AO in the return of income and its audited accounts. The assessee has already placed a reliance on the decision in the case of CIT Vs. Reliance Petro-products Ltd 2010 (3) TMI 80 - SUPREME COURT wherein it was held that merely because a claim was not accepted by the Assessing Officer, that cannot itself lead to the levy of penalty. Assessee has filed complete particulars of income in respect of claim of expenditure and it is not the case of non-disclosure. The assessee filed explanation before the AO as well as before the CIT(A). During penalty proceedings the assessee had made investments during the year in shares of Trent Ltd. which is engaged in the business of advertising and the investee company is engaged in the retail sector with a view to building long term business prospects for the group company, Trent Limited. Even the investments in shares were made out of mixed funds as well as borrowed funds. Hence in our view the explanation seems to be bonafide and assessee is not exigible to levy of penalty u/s. 271(1) (c) - Appeal of the assessee is allowed.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income-tax Act on disallowance of interest expenditure.

Analysis:
The appeal concerns the confirmation of penalty by the CIT(A) under section 271(1)(c) of the Act on disallowance of interest expenditure. The assessee contested the penalty on various grounds. The primary argument was that the penalty was confirmed without specifying whether it was for concealment of income or furnishing inaccurate particulars. The assessee also contended that the penalty notice was issued mechanically and that no concealment or inaccurate particulars were involved. The appellant claimed that the interest expenditure was allowable under section 36(1)(iii) of the Act and was made in good faith. The Assessing Officer made adjustments based on a difference in interpretation of provisions, which, according to the appellant, should not lead to penalty as all details were disclosed during assessment proceedings.

During the proceedings, the appellant argued that if a penalty were to be imposed, it should only be on a portion of the expenditure claimed. The ITAT analyzed the facts and noted that the interest expenditure was related to funds borrowed for investments in shares, resulting in exempt income. The appellant had disclosed all relevant details during assessment and claimed the expenditure in good faith. The ITAT referred to a Supreme Court decision emphasizing that a claim not accepted by the Assessing Officer does not automatically warrant a penalty under section 271(1)(c). The ITAT found the appellant's explanation to be bona fide, with no intent to furnish inaccurate particulars of income.

Ultimately, the ITAT concluded that the appellant had provided complete income particulars and had explained the investments made. As there was no non-disclosure and the explanations were deemed genuine, the penalty under section 271(1)(c) was deleted, and the appeal of the assessee was allowed.