2015 (2) TMI 442 - AT - Income Tax

Penalty under section 271(1)(c) - disallowance of interest u/s 43B as there is variation between the amount stated to have been adjusted by the assessee to that of amount adjusted by the bank in their books - Held that - Assessee adjusted towards the interest and did not disallow any amount under section 43B whereas, the said Bank adjusted the amount towards principal, restricting the adjustment to the interest to a smaller amount i.e., to the extent of ₹ 83,51,795/-. A.O. also disallowed only the balance amount in the assessment order invoking the provisions of section 43B, while allowing the above amount. Therefore, principles laid down in the case of Reliance Petro Products Ltd vs. CIT (2010 (3) TMI 80 - SUPREME COURT) equally applies to this as it is only a mere disallowance under provisions of section 43B which resulted in an addition. On these facts of the case, there is neither a concealment of income nor furnishing of inaccurate particulars. Assessee cannot be faulted if the Bank adjusts the amounts towards principal but not towards interest. In these circumstances, assessee s explanation/actions can be considered as bonafide and accordingly, we are of the opinion that there is no scope for levy of penalty under section 271(1)(c). - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the I.T. Act, 1961 based on discrepancies in interest payments claimed by the assessee and the bank.

Analysis:
The appeal was filed by the assessee against the Order of the Ld. CIT(A)-III, Hyderabad regarding the levy of penalty under section 271(1)(c) of the I.T. Act, 1961 for the assessment year 2008-2009. The assessee, a company dealing in raw material for bulk drugs, initially declared a loss of Rs. 28,07,432 in its return of income. The issue arose when the Assessing Officer (A.O.) observed variations in the interest on bank loans claimed by the assessee under "Finance Charges." The A.O. found discrepancies between the amounts claimed by the assessee and those reported by the bank. The assessee agreed to disallow the interest under section 43B due to the differences in adjustments made by the assessee and the bank. Consequently, the A.O. levied a penalty under section 271(1)(c) of the Act.

The assessee contended that the discrepancies arose due to the bank adjusting a significant portion of the payment towards the principal amount instead of interest, leading to the variance in claimed amounts. The assessee maintained that the interest was provided in the books of accounts based on information received from the bank and payments made accordingly. The assessee argued that the discrepancies did not warrant a penalty under section 271(1)(c), citing relevant case law, including the Supreme Court's decision in the case of Price Water House.

The Ld. CIT(A) upheld the penalty imposed by the A.O., stating that the assessee's explanation was not bona fide, and it was evident that a deliberate and false claim had been made. However, upon further review, the Appellate Tribunal, after considering the submissions, including details provided by the assessee and the bank's adjustments, concluded that there was no justification for the penalty under section 271(1)(c). The Tribunal noted that the assessee had based its interest calculations on information received from the bank, and the discrepancies were primarily due to the bank's internal accounting procedures. The Tribunal emphasized that the assessee's actions were bonafide, and there was no concealment of income or furnishing of inaccurate particulars. Therefore, the levy of penalty under section 271(1)(c) was canceled, and the appeal of the assessee was allowed.

In summary, the judgment focused on the discrepancies in interest payments claimed by the assessee and the bank, leading to the levy of a penalty under section 271(1)(c). The Tribunal ultimately ruled in favor of the assessee, emphasizing the bonafide nature of the assessee's actions and the lack of deliberate wrongdoing, thereby canceling the penalty.