2020 (4) TMI 125 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - No loss to revenue - addition made towards interest income under the head income from other sources - concealment of particulars of income in respect of interest received from Hiranandani Constructions Pvt Ltd. - income received from builder has not been offered to tax, because interest paid on loan is more than the amount of interest received and hence opined that the assessee has furnished inaccurate particulars of income which leads to concealment of particulars of income - HELD THAT - The assessee has taken housing loan of ₹ 2,25,00,000/- from Kotak Mahindra Bank Ltd., on 28.01.2011 and said loan has been directly paid to Hiranandani constructions Pvt Ltd. Since the installment paid for purchase of flat is in excess of amount needs to be paid, in the schedule of payments the developer has paid interest of ₹ 13,62,658/- calculated @ 12% on excess money received before the due date of payment from the assessee. The assessee has paid interest on housing loan to Kotak Mahindra Bank a sum of ₹ 14,19,435/-, and did not claim deduction towards interest paid on housing loan u/s 24(b) of the Act. The assessee has also not offered interest income interest received from Hiranandani Constructions Pvt Ltd., of ₹ 13,62,658/- under the head income from other sources. Sole reason for not claiming interest deduction and not offering interest income for tax is that if you consider interest payment to bank and interest received from the builder the net result under the head income from other sources is loss at ₹ 56,777/-. No doubt, the assessee needs to disclose necessary facts with regard to payment of interest for housing loan and receipt of interest income from builder under appropriate head of income. But fact remains that if you consider net result of both transactions the assessee incurred loss of ₹ 56,777/- and from this it is abundantly clear that there is no loss of revenue to the Government. When there is no loss of revenue to the Government and the claim of the assessee is bonafide, then the rigours of penalty provided u/s 271(1)(c) of the Act cannot be invoked. In this case, on perusal of facts, we find that the explanation offered by the assessee for not offering interest income to tax is bonafide and hence we are of the considered view that the A.O as well as Ld. CIT(A) were erred in levying penalty u/s 271(1)(c) - Decided in favour of assessee.

Issues:
1. Validity of penalty order under section 271(1)(c) of the Income Tax Act.
2. Claim of allowability of interest expenses.
3. Levy of penalty for both concealing and furnishing inaccurate particulars of income.
4. Validity of penalty confirmation without fresh notice by new ITO.
5. Bonafide claim leading to penalty under section 271(1)(c) of the Act.

Issue 1: Validity of penalty order under section 271(1)(c) of the Income Tax Act:
The appellant challenged the penalty order under section 271(1)(c) of the Income Tax Act, arguing that the notice issued did not specify whether the penalty was for furnishing inaccurate particulars of income or for concealing the particulars of income. The appellant contended that the order of penalty should be quashed due to this ambiguity. The Assessing Officer (A.O) initiated penalty proceedings based on discrepancies in the income declared by the appellant. The A.O concluded that the appellant furnished inaccurate particulars of income, leading to concealment of income, and imposed a penalty equal to 100% of the tax sought to be evaded. The appellant appealed the penalty order, emphasizing that the interest income from a builder was not offered for tax as the interest paid on a housing loan exceeded the income received. The Appellate Tribunal found the explanation provided by the appellant to be bonafide and held that the penalty under section 271(1)(c) was unjustified. Consequently, the Tribunal directed the A.O to delete the penalty.

Issue 2: Claim of allowability of interest expenses:
The appellant claimed that the interest expenses paid to Kotak Mahindra Bank Ltd. from interest earned from Hiranandani Construction Private Limited were allowable based on judicial decisions. However, the A.O and CIT(A) upheld the penalty, stating that the appellant failed to offer the interest income for tax despite claiming interest deduction under section 24(b) of the Act. The Appellate Tribunal, after analyzing the transactions and the net result, concluded that the appellant incurred a loss under the head income from other sources. As there was no loss of revenue to the government and the appellant's claim was found to be bonafide, the Tribunal deemed the penalty imposition unwarranted and directed its deletion.

Issue 3: Levy of penalty for both concealing and furnishing inaccurate particulars of income:
The appellant contested the levy of penalty for both concealing and furnishing inaccurate particulars of income, arguing that it was impermissible in law. The A.O and CIT(A) confirmed the penalty, emphasizing the failure of the appellant to offer the interest income for tax despite being taxable under the head of other sources. The Tribunal, however, found the appellant's explanation to be bonafide and observed that there was no loss of revenue to the government. Consequently, the Tribunal held that the penalty under section 271(1)(c) was not justified and directed its deletion.

Issue 4: Validity of penalty confirmation without fresh notice by new ITO:
The appellant raised an objection to the confirmation of the penalty by a new Income Tax Officer (ITO) without issuing a fresh notice after the transfer of the original ITO who initiated the penalty proceedings. The Tribunal did not find this procedural issue to be a basis for upholding the penalty. Instead, the Tribunal focused on the substantive aspects of the case, particularly the bonafide nature of the appellant's claim and the absence of revenue loss to the government, leading to the decision to delete the penalty.

Issue 5: Bonafide claim leading to penalty under section 271(1)(c) of the Act:
The crux of the Tribunal's decision revolved around the bonafide nature of the appellant's claim regarding the interest income and expenses. Despite the A.O and CIT(A) upholding the penalty for alleged inaccurate particulars of income, the Tribunal found the appellant's explanation reasonable and genuine. The Tribunal emphasized that as there was no loss of revenue to the government and the appellant's claim was bonafide, the penalty under section 271(1)(c) was unwarranted and directed its deletion, thereby allowing the appeal filed by the assessee.

This detailed analysis of the judgment from the Appellate Tribunal ITAT Mumbai highlights the various issues raised by the appellant regarding the penalty under section 271(1)(c) of the Income Tax Act and the subsequent findings and decision of the Tribunal.

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