2018 (2) TMI 1364 - AT - Income Tax

Disallowance of interest paid to the close relatives - reason to distinguish the rate of interest between close relative and third party - on loan borrowed from third parties the assessee paid interest at the rate of 12% but only to the close relatives, the assessee has paid interest at the rate of 18% - Held that - There was no reason for paying higher rate of interest to the close relatives. The contention of the assessee is that the interest charged by the bank at the relevant point of time was 17.25% and after considering the expenses and other charges levied by the bank, the rate of interest comes to 21%. This may be relevant in case the assessee has not borrowed loan from third parties. When the loan was availed from third parties at the rate of 12%, there is no reason why the assessee preferred to borrow loan from close relatives and paid interest at the rate of 18%. This Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that the excess payment has to be disallowed.- Decided against assessee Penalty u/s 271(1)(c) - profit on sales of shares was not disclosed in original return but by way of another revised return, the assessee claiming that the same was exempted under Section 10(38) - Held that - There was a confusion in the mind of the assessee whether the profit earned on the transaction on sale has to be offered or not. This confusion is because of interpretation of provisions of Income-tax Act. The assessee bonafidely believed that the profit on sale of shares is exempted from taxation. Even if there was omission, this Tribunal is of the considered opinion that such an omission cannot be construed as concealment of income or inaccurate particulars of such income. In view of the judgment of Apex Court in Price Waterhouse Coopers Pvt. Ltd. v. CIT (2012 (9) TMI 775 - SUPREME COURT), it is an inadvertent omission to disclose the income. This Tribunal is of the considered opinion that there cannot be any levy of penalty under Section 271(1)(c) of the Act. - Decided against revenue

Summary

Issues:
1. Disallowance of interest paid on unsecured loans from close relatives.
2. Penalty levied under Section 271(1)(c) for assessment year 2009-10.
3. Penalty appeals for assessment years 2010-11 and 2011-12 regarding unaccounted stock.

Issue 1: Disallowance of interest paid on unsecured loans from close relatives.
The assessee challenged the addition made by the Assessing Officer in the reassessment proceeding and the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961. The dispute centered around the interest rates paid by the assessee on unsecured loans from close relatives and third parties. The counsel for the assessee argued that the interest rate of 18% paid to close relatives was reasonable compared to the 12% paid to third parties, citing bank interest rates at the relevant time. However, the Departmental Representative contended that there was no justification for the differing interest rates. The Tribunal upheld the CIT(Appeals)' decision to disallow the excess interest paid to close relatives, stating that the reasons for the discrepancy were not valid, and confirmed the lower authority's order.

Issue 2: Penalty levied under Section 271(1)(c) for assessment year 2009-10.
The assessee initially filed a return of income admitting a total income, later revising it to include income from the sale of shares. Subsequently, another revised return excluded the share sale income, claiming it was exempt under Section 10(38) of the Act. The Department alleged deliberate concealment of income based on a cash transaction detected during a survey, leading to the revised income declaration. The Tribunal found that the omission to disclose the share transaction was due to a genuine belief in the exemption under Section 10(38), and not deliberate concealment. Citing the Price Waterhouse Coopers case, the Tribunal deleted the penalty, concluding that the omission was inadvertent and not punishable under Section 271(1)(c).

Issue 3: Penalty appeals for assessment years 2010-11 and 2011-12 regarding unaccounted stock.
The Revenue levied penalties for these years due to unaccounted stock discovered during a survey. The assessee filed returns post-survey, disclosing the income related to the unaccounted stock within the prescribed time limit. The Tribunal held that since the assessee disclosed the unaccounted stock in the original return within the specified timeframe, there was no concealment or furnishing of inaccurate particulars of income. Consequently, the penalties were deleted by the CIT(Appeals), and the Tribunal confirmed this decision, finding no grounds for interference.

In conclusion, the Tribunal dismissed the assessee's appeal in one case and the Revenue's appeals in two cases, while allowing the assessee's appeal in another case.