2016 (6) TMI 288 - AT - Income Tax

Penalty u/s.271(1) (c) - additions made u/s 94(7) - Held that - This is not a fit case for levying of penalty u/s 271(1)(c) of the Act as the assesseefirm has not concealed the particulars of income nor furnished any inaccurate particulars of income. No doubt there has been slip up in filing the claim u/s 94(7) of the Act but the same keeping in view the explanation submitted by the assessee-firm was an inadvertent omission and mistake which was not intentional or deliberate on the part of the assessee-firm or otherwise with an intention to defraud revenue to fall within four corners of rigours of penalty provisions u/s 271(1)(c) of the Act , and rather the assessee-firm came forward with an bona-fide explanation accepting the inadvertent mistake on its part and did not persue the litigation further. The assessee-firm came forward with an explanation which is a bonafide explanation as set out above and it cannot be said that the assessee-firm has concealed particulars of its income or furnished inaccurate particulars of income so that the rigours of the provisions of section 271(1)(c) of the Act can be attracted. It could be said that the assessee-firm made claim before the authorities below which did not found favour with the Revenue and was not accepted by the authorities below in quantum proceedings which was later confirmed by the learned CIT(A) and the Tribunal in quantum assessments . The case of the assessee-firm is squarely covered by the decision of Hon ble Supreme Court in the case of CIT v. Reliance Petroproducts Private Limited (2010 (3) TMI 80 - SUPREME COURT ) - Decided in favour of assessee

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Concealment of income and furnishing inaccurate particulars of income.
3. Disallowance under Section 94(7) and Section 36(1)(iii) of the Income Tax Act.
4. Applicability of Supreme Court and High Court judgments.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal concerns the levy of penalty amounting to ?8,36,850 under Section 271(1)(c) of the Income Tax Act, 1961, imposed by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalty was levied on the grounds of furnishing inaccurate particulars of income and concealment of income.

2. Concealment of Income and Furnishing Inaccurate Particulars of Income:
The assessee-firm argued that there was no concealment or furnishing of inaccurate particulars of income. The firm contended that the higher assessed income resulted from an inadvertent omission under Section 94(7) and a genuine difference of opinion regarding the disallowance of interest claimed under Section 36(1)(iii). The AO, however, held that the provisions of Section 94(7) were clear and that the omission was unjustified, indicating willful neglect. The AO also noted that the firm was aware of unreasonable transactions with sister concerns, violating Section 40A(2)(b).

3. Disallowance under Section 94(7) and Section 36(1)(iii) of the Income Tax Act:
The scrutiny assessment led to two additions: ?1,44,580 under Section 94(7) and ?21,42,363 towards interest expenses. The assessee-firm did not contest the disallowance under Section 94(7) before the CIT(A). For the interest disallowance, the firm argued that the funds borrowed at 12% interest were deployed at 6-9% with sister concerns to minimize interest loss and ensure safety and timely return of funds. The AO disallowed ?22,04,282 in interest expenses, later confirmed by the CIT(A) at ?21,42,363, as the firm received lower interest from sister concerns compared to other parties.

4. Applicability of Supreme Court and High Court Judgments:
The assessee-firm relied on several judgments to argue against the penalty, including CIT v. Reliance Petroproducts (P) Ltd., CIT v. S.A. Builders, and CIT v. Pankaj Munjal Family Trust. The AO and CIT(A) relied on UOI v. Dharmendra Textile Processors and CIT v. Zoom Communication Private Limited to justify the penalty. However, the Tribunal found that the firm provided a bona fide explanation for the inadvertent omission under Section 94(7) and the interest disallowance, which was not intentional or deliberate. The Tribunal emphasized that each omission or mistake does not automatically attract penalty if a bona fide explanation is provided, as established in Reliance Petroproducts.

Conclusion:
The Tribunal concluded that the assessee-firm did not conceal income or furnish inaccurate particulars, and the penalty under Section 271(1)(c) was not sustainable. The firm’s explanations were found to be bona fide and plausible. Consequently, the Tribunal ordered the deletion of the penalty of ?8,36,850 and allowed the appeal filed by the assessee-firm.

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