2001 (6) TMI 168 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the assessee's claim for interest as business expenditure.
2. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 for concealment of income or furnishing inaccurate particulars.

Issue-wise Detailed Analysis:

1. Legitimacy of the Assessee's Claim for Interest as Business Expenditure:

The primary contention was whether the assessee's claim for interest of Rs.3,04,000 as business expenditure was bona fide. The CIT(A) disallowed Rs.2,59,000 of this claim, enhancing the assessment. The CIT(A) found that the assessee borrowed money at a higher interest rate and lent it to family members at a lower rate, which was not in the ordinary course of business but to gain control over a company. The assessee argued that the loans were part of its money-lending business and that the purpose for which the borrowers used the money was irrelevant. The Tribunal upheld the CIT(A)'s enhancement, stating that the borrowings were not for genuine business purposes but were illusory and colorable, meant to reduce the tax incidence.

2. Imposition of Penalty under Section 271(1)(c):

The CIT(A) imposed a penalty of Rs.2,59,000 under section 271(1)(c) for furnishing inaccurate particulars of income. The assessee argued that the claim was bona fide and that mere disallowance of an expenditure does not automatically attract penalty. The Tribunal noted that no materials were brought to show that the assessee received higher interest than declared or claimed higher expenditure than paid. The Judicial Member referenced the Delhi High Court's decision in Addl. CIT v. Delhi Cloth & General Mills Co., which held that non-acceptance of an expenditure as revenue expenditure does not conclusively imply furnishing inaccurate particulars. The Tribunal concluded that the penalty was not rightly levied as the claim's non-acceptance did not amount to concealment or furnishing inaccurate particulars.

Separate Judgments:

Judgment by Shri S.L. Banerjee, Judicial Member:

The Judicial Member held that the penalty was not justified, emphasizing that the mere non-acceptance of an expenditure as revenue does not mean inaccurate particulars were furnished. The Judicial Member referenced the Delhi High Court's decision, which supported this view, and concluded that the penalty was not rightly imposed.

Judgment by Shri P. Pradhan, Accountant Member:

The Accountant Member disagreed, arguing that the CIT(A) found the assessee borrowed money at higher rates and lent it at lower rates to family members, inflating interest expenditure to reduce tax incidence. The Accountant Member referenced various judicial decisions, including the Supreme Court's ruling in Chuharmal v. CIT, which supported the imposition of penalty when returned income is less than 80% of assessed income. He concluded that the penalty was justified.

Third Member's Opinion by Shri R.P. Garg, Vice President:

The Third Member was referred to resolve the difference of opinion. He noted that the assessee borrowed Rs.19 lakhs and lent it to family members, who used it to purchase shares. He emphasized that the assessee charged interest on these advances and furnished all material particulars. He concluded that the disallowance of interest did not constitute concealment or furnishing inaccurate particulars, and thus, the penalty was not justified. The Third Member deleted the penalty, aligning with the Judicial Member's view.

Final Decision:

The appeal was allowed, and the penalty under section 271(1)(c) was deleted, as the Tribunal concluded that the disallowance of interest did not amount to concealment or furnishing inaccurate particulars of income.