2018 (10) TMI 2039 - AT - Income Tax

Levying penalty u/s. 271(1)(c) - disallowance of expenditure u/s 40(a)(ia) - . Disallowance of interest on delayed payment of professional tax and TDS - HELD THAT - It is not a case, where the assessee is found to have raised a bogus claim, which on the said count has been disallowed by the AO. Rather, as observed by us hereinabove, the disallowance of the interest expenditure which had occasioned for failure on the part of the assessee to deposit the tax deducted at source, as regards the said expenditure, in no way dislodges the veracity of the claim of the assessee as regards incurring of the expenditure under consideration. Thus, to our considered view the failure of the assessee to deposit the amount of tax deducted at source on the aforesaid interest paid to M/s. Citygold Investment Pvt. Ltd., would though justifiably lead to dislodging of the claim of allowability of the said interest expenditure in the hands of the assessee while computing its income, but the same cannot lead to levy of penalty u/s 271(1)(c). We are also not impressed with the observations of the lower authorities that as the assessee had continued to persist with claiming of the unsubstantiated and inadmissible claim of interest expenditure, thus it clearly proved that it had knowingly furnished inaccurate particulars and had raised an untenable claim of expenditure in its return of income. We are of the considered view that as observed by us hereinabove, as the genuineness of the incurring of the interest expenditure under consideration had at no stage been doubted by the lower authorities, thus a mere disallowance of the said expenditure u/s. 40(a)(ia) cannot lead to drawing of an inference that the assessee had furnished inaccurate particulars of its income. Merely because the assessee had claimed deduction of interest expenditure which has not been accepted by the revenue, penalty u/s 271(1)(c) could not have been imposed . Rather, mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. As no part of the particulars filed by the assessee in respect of the interest expenditure which admittedly had been paid to M/s. Citygold Investment Pvt. Limited are found to be incorrect, thus as per the judgment of CIT Vs. Reliance Petroproducts (P) Limited 2010 (3) TMI 80 - SUPREME COURT no penalty u/s 271(1)(c) could have been validly imposed in the hands of the assessee. We thus in terms of our aforesaid observations, not being in agreement with the view taken by the lower authorities, thus delete the penalty imposed by the AO u/s 271(1)(c) in respect of the disallowance of interest expenditure. Penalty imposed by the AO u/s. 271(1)(c) as regards the disallowance of the delayed payment of professional tax and interest on delayed payment of TDS - As persuaded to subscribe to the view of the lower authorities that as the aforementioned interest expenditure was incurred by the assessee on account of not adhering to the prescribed time limit for the deposit of the respective amounts, the same was thus inadmissible as per the provision of Sec. 37(1)of the Act. However, we are of the considered view, that as no part of the claim of the assessee of having incurred the aforesaid interest expenditure is found to be incorrect, therefore, merely on the count that the view of the assessee that the said amounts were allowable as an expenditure did not find favour with the AO, penalty under Sec. 271(1)(c) could not have been validly imposed on the assessee We thus, in terms of our aforesaid observations set aside the order of the CIT(A) and delete the penalty imposed by the A.O. as regards the disallowance of the delayed payment of professional tax and interest on delayed payment of TDS.

Summary

Issues Involved:

1. Validity of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance of interest expenditure due to non-deposit of TDS.
3. Disallowance of interest on delayed payment of professional tax and TDS.
4. Jurisdictional validity of the penalty proceedings.

Detailed Analysis:

1. Validity of Penalty Imposed under Section 271(1)(c):

The core issue was whether the penalty under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars was justified. The assessee contended that the penalty was imposed without specifying the exact nature of the default, i.e., whether it was for concealment of income or furnishing inaccurate particulars. The tribunal noted that while the initial show cause notice did not specify the default, a subsequent notice did, and the assessee did not challenge its validity. Thus, the tribunal upheld the jurisdiction to levy the penalty but focused on whether the penalty was justified on merits.

2. Disallowance of Interest Expenditure Due to Non-Deposit of TDS:

The assessee had claimed an interest expenditure of Rs. 3,74,28,580/- which was disallowed by the Assessing Officer (A.O.) under Section 40(a)(ia) due to non-deposit of TDS. The tribunal observed that the disallowance was a result of a procedural lapse (non-deposit of TDS) rather than any inaccuracy or falsity in the particulars of income. The tribunal relied on precedents, including the Supreme Court's judgment in Reliance Petroproducts, to conclude that a mere disallowance due to non-compliance with TDS provisions does not amount to furnishing inaccurate particulars of income. Therefore, the penalty under Section 271(1)(c) was not justified solely on this disallowance.

3. Disallowance of Interest on Delayed Payment of Professional Tax and TDS:

The A.O. disallowed interest on delayed payment of professional tax (Rs. 2,500/-) and TDS (Rs. 37,909/-), considering them inadmissible under Section 37(1). The tribunal acknowledged the disallowance but held that the mere disallowance of such claims does not automatically lead to a penalty under Section 271(1)(c). The tribunal emphasized that the claims were not found to be false or inaccurate, and thus, penalty imposition was unwarranted.

4. Jurisdictional Validity of the Penalty Proceedings:

The tribunal addressed the procedural aspect of penalty imposition, noting the initial defect in the show cause notice. However, since a subsequent notice rectified this issue and was not contested, the tribunal found the jurisdictional challenge to be without merit. The tribunal dismissed the additional ground of appeal concerning jurisdictional validity.

Conclusion:

The tribunal set aside the order of the CIT(A) and deleted the penalty of Rs. 1,21,56,814/- imposed by the A.O. under Section 271(1)(c) of the Act. The appeal of the assessee was partly allowed, with the tribunal emphasizing that procedural lapses and bona fide claims, even if disallowed, do not necessarily constitute grounds for penalty under Section 271(1)(c).