2022 (9) TMI 361 - HC - Income Tax

Penalty u/s 271(1)(c) - disallowance of interest under section 36(1)(iii) - amount of interest paid in respect of capital borrowed for the purposes of business or profession has to be allowed as a deduction in computing the income tax under section 28 - As per AO Assessee had furnished inaccurate particulars of income suppressed its real income - HELD THAT In the present case, it can be seen that penalty proceedings had been initiated against the assessee only on account of the fact that the deduction, which was claimed by the assessee had been disallowed. The issue being squarely covered by the judgment of the Hon ble Apex Court in the case of Reliance Petroproducts (P.) Ltd. 2010 (3) TMI 80 - SUPREME COURT , no substantial question of law, as proposed, arises in the present case. - Decided in favour of assessee.

Summary

Issues:
Appeal against ITAT order setting aside penalty under section 271(1)(c) of the Income Tax Act for assessment year 2008-09.

Analysis:
1. The appeal was filed against the ITAT order that set aside the penalty levied under section 271(1)(c) of the Income Tax Act for the assessment year 2008-09. The appellant had initially declared a total business loss, which was later revised to a higher loss amount. The Assessing Officer (A.O.) initiated penalty proceedings under section 271(1)(c) on the grounds of inaccurate income particulars and income suppression. The penalty imposed was challenged by the assessee.

2. The CIT(A) dismissed the appeal regarding the disallowance under Section 36(1)(iii) of the Act. However, the ITAT allowed the quantum appeal based on the principle of 'business expediency' following the case of S.A. Builders Ltd. vs. CIT (Appeals). The ITAT concluded that the money advanced by the assessee to its subsidiaries was for business reasons and reversed the CIT(A)'s decision.

3. The Hon'ble Supreme Court's judgment in S.A. Builders Ltd. emphasized the commercial expediency aspect of interest-free loans given to sister companies. The judgment was also referred to in subsequent cases. The penalty proceedings against the assessee were upheld by the CIT(A) but later deleted by the ITAT after allowing the quantum appeal.

4. The appellant argued that the penalty deletion by the ITAT was premature due to pending matters before the Supreme Court reconsidering the principles laid down in S.A. Builders Ltd. However, the respondent contended that unsustainable claims do not amount to concealment of income or inaccurate particulars, citing the case of Commissioner of Income-tax vs. Reliance Petroproducts.

5. The final decision emphasized that the penalty proceedings were initiated solely based on the disallowance of a deduction claimed by the assessee, which did not automatically warrant a penalty under section 271(1)(c) as per the precedent set by the Hon'ble Apex Court. Consequently, the appeal was dismissed, and no costs were awarded.