2022 (9) TMI 834 - AT - Income Tax

Penalty u/s. 271(1)(c) - adjustment of loss of interest paid to partnership firm setoff against salary income and income from house property - loss relates to interest paid on debit balance by the assessee to the partnership firm where the assessee is a partner - assessment and penalty proceedings as independent proceedings - contention of the assessee that merely rejection of his claim of interest on debit balance paid by the assessee to the firm does not attract penalty u/s 271(1)(c) - HELD THAT - In the instant case, the matter relates to claim of interest paid by the assessee to the partnership firm where the assessee is a partner and from where the assessee also draws the remuneration. Both the interest paid and remuneration received from the partnership firm has been duly reflected in the return of income and it is thus manifest that the same will falls under the head Income from business/profession and given that interest paid is more than salary income, the same has resulted in a business loss and which has further been set off against income under the other heads of income during the year and which has resulted in net loss These facts are not been disputed by the Revenue and therefore, as far as furnishing of particulars of income including claim of expenditure are concerned, the same is evident from the return of income and the particulars so furnished cannot be said to be inaccurate. Given that there has been a delay in filing of the return of income, the AO is well within his right to restrict the carry forward of the net loss so claimed by the assessee, however, as far as claim of set off under the same head of income and against other heads of income during the year under consideration are concerned, the assessee is well within his rights to claim the same. Nothing has been stated in the order of the lower authorities nor brought to my notice which restricts such set off during the year under consideration. The issue of levy of penalty u/s 271(1)(c) in the instant appeal is pari-materia to A.Y 2014-15 wherein under identical set of facts and circumstances of the case, the penalty so levied by the AO has been deleted by the ld CIT(A) - Appeal of assessee allowed.

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed against the sustenance of a penalty amounting to Rs.46,634/- under section 271(1)(c) of the Income Tax Act, 1961. The assessment was completed under section 143(3) where the assessed income was determined against the returned income. The Assessing Officer disallowed the claim of loss from business and profession against salary income and income from house property. The assessee voluntarily withdrew the claim due to a delay in filing the return, but the Assessing Officer held the claim as not allowable. The Commissioner of Income Tax (Appeals) upheld this decision, stating the assessee lost the right to appeal by agreeing to the addition during assessment proceedings.

2. The levy of penalty under section 271(1)(c) was initiated separately during the assessment proceedings. The Assessing Officer levied the penalty for making an incorrect claim of business loss to reduce tax liability. The assessee did not appeal this decision. The Commissioner of Income Tax (Appeals) confirmed the penalty, stating that a blatantly wrong claim attracts penalty under section 271(1)(c). The assessee argued that the claim was made in good faith, citing the partnership deed where interest paid to the firm was treated as a business expense. The assessee referred to a similar case in A.Y. 2014-15 where the penalty was deleted, emphasizing the bona fide nature of the claim.

3. During the hearing, the assessee contended that the penalty notice was not specific and that the claim for interest set off against various incomes did not warrant a penalty under section 271(1)(c). The assessee argued based on legal precedents and the submission made during assessment proceedings regarding the disallowance of the claim. The assessee also highlighted the partnership deed's provisions and the treatment of interest payments as a business expense. The Revenue, however, maintained that the penalty was justified as the assessee deliberately furnished inaccurate particulars of income.

4. The Tribunal observed that assessment and penalty proceedings are independent. The claim for interest paid to the partnership firm was reflected in the return of income and set off against other incomes, resulting in a net loss. The Tribunal found that the particulars furnished were not inaccurate, and the delay in filing the return allowed the AO to restrict the carry forward of the net loss. The Tribunal noted that the issue of penalty was similar to a previous case where the penalty was deleted. Considering the facts and circumstances, the Tribunal directed the deletion of the penalty levied under section 271(1)(c).

In conclusion, the Tribunal allowed the appeal of the assessee, directing the deletion of the penalty under section 271(1)(c) of the Income Tax Act, 1961.