2015 (7) TMI 619 - HC - Income Tax

Penalty u/s 271(1)(c) - Assessee in it s accounts, had shown borrowed funds and interest free advances to it s sister concerns - Tribunal accepted the reasoning of the Commissioner that the penalty cannot be levied merely because the claim of the Assessee is found to be incorrect - Held that - In the present case when the Assessee had bonafide pleaded that it was covered by a particular position of law and that one authority i.e. the Tribunal had passed certain orders in it s favour during the assessment proceedings, it could not be said that the Assessee fell within the ambit of Section 271(1)(c). The assertion of the Assessee that it was not served with a notice and therefore cannot be blamed for not filing a reply, has gone uncontroverted. This being the position we do not find any perversity with the decision of the Commissioner (Appeals) and the Tribunal in deleting the penalty imposed by the Assessing Officer. In any case this is a possible view of the matter upon appreciating the evidence. In the circumstances, both the grounds urged by the Revenue cannot be termed as substantial questions of law. - Decided against revenue.

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal for Assessment Year 2003-2004, Disallowance of proportionate interest on interest-free advances, Levy of penalty for concealing income and furnishing inaccurate particulars, Interpretation of Section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
1. The Respondent Assessee had shown borrowed funds and interest-free advances to sister concerns in its accounts. The Assessing Officer disallowed proportionate interest on the interest-free advances, which was upheld by the Commissioner. The Assessee appealed to the Income Tax Appellate Tribunal, which remanded the matter for reexamination. The Tribunal relied on the decision in S.A. Builders Ltd. v. Commissioner of Income Tax to set aside the orders for reevaluation.

2. Upon reexamination, the Assessing Officer again disallowed the proportionate interest and levied a penalty for concealing income. The Assessee appealed to the Commissioner, who allowed the appeal stating that penalty cannot be levied merely due to disallowance of a claim unless there is evidence of malafide intention. The Revenue appealed to the Tribunal, which agreed with the Commissioner's decision based on the ruling in Commissioner of Income Tax Vs Reliance Petroproducts Pvt. Ltd.

3. The Revenue contended that the Assessee concealed income and misrepresented facts, justifying the penalty. The Assessee argued that no notice was issued before imposing the penalty, and its actions were based on a bonafide belief, supported by the Tribunal's earlier decision. The Apex Court's interpretation of Section 271(1)(c) in Reliance Petroproducts was cited to emphasize the conditions necessary for imposing a penalty.

4. The Court analyzed whether the Assessee's actions constituted concealment or furnishing of inaccurate particulars under Section 271(1)(c). It was noted that the Assessee's interpretation of the law, challenged through proper legal proceedings, did not demonstrate dishonesty or malafide intent. The Court distinguished the case from Commissioner of Income Tax Vs. Zoom Communications P. Ltd., where the Assessee admitted to incorrect claims without justification.

5. Ultimately, the Court found that the Assessee's actions were not indicative of concealment or deliberate furnishing of inaccurate particulars. The decision to delete the penalty was upheld, as the Assessee's belief in being covered by legal precedents and lack of notice before penalty imposition were considered valid reasons. The Court dismissed the appeal, emphasizing that the grounds raised by the Revenue did not constitute substantial questions of law.