2017 (9) TMI 732 - AT - Income Tax

Penalty u/s 271(1)(c) - reopening of assessment - disallowance of interest on loans - Held that - It is a fact that in the reasons for reopening of the assessment, A.O. has mentioned a very small amount of interest of ₹ 61,063. Therefore, even the A.O. was not aware of the exact amount to the extent of which income has escaped assessment. The A.O. merely on vague and inaccurate figure reopened the assessment. Therefore, nothing could be detected against the assessee specifically at the stage of reopening of the assessment. The assessee when received notice under section 148, declared additional income of ₹ 31,88,093 on account of disallowance of interest on loans. Therefore, the assessee made full disclosure without there being anything detected against the assessee and as such, it may be a bonafide mistake of the assessee in not declaring the total disallowance of interest in the original return of income. Therefore, on such facts, penalty cannot be leviable against the assessee. Merely because assessee had claimed expenditure, which it was not acceptable to the Revenue, that by itself would not attract levy of penalty under section 271(1)(c) of the I.T. Act - Decided in favour of assessee.

Summary

Issues:
- Appeal against penalty under section 271(1)(c) of the I.T. Act, 1961 for A.Y. 2009-2010.
- Appeal against penalty under section 271(1)(c) of the I.T. Act, 1961 for A.Y. 2011-2012.

Analysis:
A.Y. 2009-2010:
- The assessee's return showed income of ?4,70,490 but was later revised to ?36,58,583 after a notice under section 148 for not deducting TDS on interest expenses.
- The AO initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income and concealing income.
- The AO imposed the penalty for additional income declared after being unearthed by the department.
- The penalty order lacked specification under which limb of Section 271(1)(c) it was initiated.
- Citing precedents, the tribunal canceled the penalty due to the lack of specification in the penalty initiation.
- The assessee's argument of full disclosure and no detection against them at the reopening stage led to the cancellation of the penalty.

A.Y. 2011-2012:
- Similar to A.Y. 2009-2010, the penalty under section 271(1)(c) was challenged.
- Following the decision for the previous year, the tribunal canceled the penalty for A.Y. 2011-2012 as well.
- Both appeals of the assessee were allowed, and the penalties were canceled in both cases.

This judgment highlights the importance of specific penalty initiation under the relevant section, the significance of full disclosure by the assessee, and the need for proper justification for penalty imposition under the I.T. Act, 1961. The tribunal's decision to cancel the penalties in both A.Y. 2009-2010 and A.Y. 2011-2012 showcases the adherence to legal precedents and the requirement for clear and justified penalty imposition in tax matters.