2012 (10) TMI 899 - AT - Income Tax

Penalty u/s 271(1)(c) - dis-allowance of interest on borrowed funds on the ground that funds were not utilized for the purpose of business - Held that - It is undisputed that entire material was disclosed by the assessee in the return of income. AO had disallowed interest on borrowed funds on the ground that the funds were not utilized for the purpose of business. Merely because the disallowance has been made would not mean that the case of assessee falls into furnishing of inaccurate particulars of income. CIT(A) while deleting penalty has also held that the assessee had offered an explanation and was able to prove that the explanation was bona fide and all facts relating to the same had been disclosed. Since neither Part-A nor Part-B of Explanation was found to be applicable, in our considered opinion penalty u/s 271(1)(c) is not imposable - Decided in favor of assessee

Summary

Issues:
Deletion of penalty under sec. 271(1)(c) of the Act.

Analysis:
The case involved an appeal by the Revenue for Assessment Year 2005-06 regarding the deletion of a penalty of Rs.8,78,788/- imposed under sec. 271(1)(c) of the Income Tax Act, 1961. The main issue was whether the assessee furnished inaccurate particulars of income and concealed taxable income by claiming non-allowable expenses. The Assessing Officer contended that the assessee had furnished inaccurate particulars of income and failed to offer any explanation or evidence, resulting in the penalty imposition. However, during the penalty proceedings, the assessee argued that making an incorrect claim does not amount to furnishing inaccurate particulars and that the disallowance of expenses claimed did not justify the penalty. The CIT(A) upheld the assessee's contentions and deleted the penalty.

In the judgment, it was highlighted that the onus was on the assessee to establish that the failure to return correct income did not arise from fraud or willful neglect. The Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd. was cited, emphasizing that merely making an incorrect claim does not constitute furnishing inaccurate particulars. The Court clarified that for penalty imposition, the details supplied in the return must be inaccurate, and a mere unsustainable claim does not amount to furnishing inaccurate particulars. The CIT(A) also referred to the Punjab & Haryana High Court's decision in CIT Vs. Ajaib Singh & Co., supporting the view that disallowance of expenses does not necessarily imply inaccurate particulars.

The Tribunal, after considering the arguments and legal precedents, upheld the CIT(A)'s decision to delete the penalty. It was noted that the assessee had disclosed all material facts and raised a legal claim, even if ultimately found legally unacceptable. The Tribunal concurred that the case did not fall within the ambit of Explanation 1 to sec. 271(1)(c) and that the penalty was not imposable as per the Supreme Court's ruling in the Reliance Petroproducts Pvt. Ltd. case. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty.

In conclusion, the judgment provided a detailed analysis of the penalty deletion under sec. 271(1)(c) of the Act, emphasizing the distinction between inaccurate particulars and incorrect claims. The decision relied on legal precedents to support the assessee's position that the penalty was not justified based on the facts and circumstances of the case.