2012 (10) TMI 357 - AT - Income Tax

Penalty u/s 271(1)(c) Assessee has borrowed money & partly invest in shares Assessee claim deduction of interest - AO disallowed the interest by invoking the provisions of Sec. 14A - He also levied the penalty u/s 271(1)(c) Held that - As assessee correctly disclosed the money borrowed by it and its utilization which was partly for the purchase of shares in his return. It is not the case that the assessee furnished either any inaccurate facts or wrong facts. Therefore, merely because the AO disallowed part of interest, it would not amount to either concealment of income or furnishing of inaccurate particulars. Following the decision of SC in Reliance Petro Products Pvt. Ltd. (2010 (3) TMI 80) & Delhi High Court in Zoom Communication Pvt. Ltd. (2010 (5) TMI 34). Decision in favour of assessee

Summary

Issues:
1. Cancellation of penalty under Section 271(1)(c) of the Income-tax Act, 1961.

Analysis:
The Appellate Tribunal ITAT, Delhi heard an appeal by the Revenue against the cancellation of a penalty of Rs.10,98,757 levied by the Assessing Officer under Section 271(1)(c) of the Income-tax Act, 1961. The case involved an assessee company engaged in building maintenance and renting properties that secured a loan from HDFC Bank, partly invested in shares. The Assessing Officer disallowed interest under Section 14A and imposed a penalty, which was later cancelled by the CIT(A), leading to the Revenue's appeal.

During the hearing, the Revenue argued that since the borrowed money was used for share acquisition, any expenditure for earning dividend (exempt under Section 10(33)) should be disallowed under Section 14A. The Revenue contended that the claim for interest deduction without disallowance under Section 14A amounted to furnishing inaccurate particulars, citing relevant case law.

Conversely, the assessee's counsel argued that disclosing all facts in the return of income did not constitute concealment or inaccuracies. The counsel emphasized the debatable nature of Section 14A disallowance, especially considering it was a newly introduced provision at the time. The counsel cited various court decisions to support the contention that the disallowance did not imply concealment or inaccuracies.

The Tribunal analyzed the arguments and relevant case law, particularly the decision in Reliance Petroproducts Pvt. Ltd. case, emphasizing the importance of bona fide claims to avoid penalty under Section 271(1)(c). The Tribunal concluded that the assessee's claim was bona fide, considering the newness of Section 14A at the time of filing the return and the accurate disclosure of relevant information. Consequently, the Tribunal upheld the CIT(A)'s decision to cancel the penalty, dismissing the Revenue's appeal.

In conclusion, the Tribunal's decision was based on the assessment of the claim's bona fides in light of the legal provisions and relevant case law, ultimately leading to the dismissal of the Revenue's appeal.