2020 (4) TMI 259 - AT - Income Tax

Penalty u/s 271(1)( c) - Addition on account of interest on FDR - difference in method of calculating the interest income - assessee was maintaining multiple accounts and was estimating the accrual income by way of interest on unmatured Fixed deposit and this estimation can be at variance with the working of the bank - HELD THAT - Merely because of method of calculating the interest income as adopted by the assessee company does not match with that adopted by the AO then no penalty can be levied. We are conscious of the fact that law for making addition in quantum proceedings is different from the law for imposing penalty. In recognition of this fundamental difference, both proceedings have been kept separate and independent. Provisions of Section 271(1)( c) of the Act give discretionary powers to the authority levying penalty to levy or not levy penalty in the case of concealment of income or furnishing inaccurate particulars of income. Hon'ble Supreme Court in the case of Hindustan Steel Ltd. vs State of Orissa 1969 (8) TMI 31 - SUPREME COURT laid down a ratio that penalty should not be imposed merely because it is lawful to do so. AO has to exercise his discretion judiciously. Merely because of method of calculating the interest income as adopted by the assessee company does not match with that adopted by the AO then in that eventuality no penalty can be levied. Our this view is fortified by the decision in the case of CIT vs Reliance Petroproducts (P) Ltd. 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
- Imposition of penalty under section 271(1)(c) of the I.T. Act, 1961 for concealment of income.

Detailed Analysis:

1. Background and Assessment Proceedings:
The appeal was filed against the order of CIT(A) confirming the penalty imposed by the AO under section 271(1)(c) of the I.T. Act, 1961. The assessment for the year 2009-10 resulted in an addition on account of interest on FDR, which led to the initiation of penalty proceedings. The AO imposed a penalty of ?38,516 for concealment of income, which was upheld by the CIT(A).

2. Arguments of the Assessee:
The assessee maintained accounts on an accrual basis and argued that the method of estimating accrued income through interest on unmatured fixed deposits could differ from the bank's working. The assessee contended that the total interest income on maturity would align with the bank's total interest. The assessee emphasized that there was no intention to conceal income, citing the distinction between quantum proceedings and penalty imposition.

3. Arguments of the Revenue:
The AO's position was that the assessee had declared less interest income compared to what was reflected in the 26AS statement. The AO considered this a case of concealing income and furnishing inaccurate particulars. The revenue contended that the assessee's explanation based on the bank's methodology was not acceptable, leading to the imposition of the penalty.

4. Decision of the Tribunal:
The Tribunal noted that the assessee's method of calculating interest income may differ from the AO's approach, but this alone did not warrant a penalty. Emphasizing the discretionary powers under section 271(1)(c), the Tribunal highlighted the need for judicious exercise of penalty imposition. Referring to the Hindustan Steel Ltd. case, the Tribunal stressed that penalties should not be imposed merely because they are lawful. Following the principles laid down by the Supreme Court in the Reliance Petroproducts case, the Tribunal concluded that the penalty imposed was unwarranted and deleted the penalty sustained by the CIT(A).

5. Conclusion:
The Tribunal allowed the appeal of the assessee, emphasizing that the method of calculating interest income should not be the sole basis for imposing a penalty under section 271(1)(c). By invoking relevant legal precedents and highlighting the discretionary nature of penalty provisions, the Tribunal ruled in favor of the assessee, deleting the penalty amount.