2019 (5) TMI 1309 - AT - Income Tax

Penalty u/s 271(1)(c) - Addition of interest received on fixed deposit and interest received from other parties - HELD THAT - Undisputedly, in the assessment order, while initiating penalty proceedings under section 271(1)(c) in respect of the aforesaid addition, AO has not recorded any satisfaction with regard to the exact offence committed by the assessee requiring imposition of penalty under section 271(1)(c) - AO has simply mentioned initiate penalty u/s 271(1)(c) . He has not stated whether initiation of penalty proceeding is for furnishing of inaccurate particulars of income or for concealment of income or for both. Only in the penalty order passed under section 271(1)(c), he has stated that penalty is imposed for furnishing inaccurate particulars of income. AO has failed to record any satisfaction with regard to the nature of offence committed by the assessee requiring imposition of penalty under section 271(1)(c) of the Act. For this reason alone, the order imposing penalty under section 271(1)(c) of the Act is unsustainable. Disputed addition on the basis of which penalty imposed is on account of deduction claimed towards interest paid to partners @ 15% as against the admissible rate of interest of 12% - addition made is on account of differential interest amounting to 3% - the contention of the assessee is that the claim of deduction of interest payment @ 15% is a bona fide error since in no other assessment year the assessee has claimed such deduction at a higher rate. We find the aforesaid explanation of the assessee plausible. Moreover, full particulars regarding the payment of interest were available with the Assessing Officer. It is also not the case of the AO that interest payment to partners is inadmissible. In the aforesaid view of the matter, we hold that the assessee cannot be accused of furnishing inaccurate particulars of income so as to attract the provisions of section 271(1)(c)

Summary

Issues:
Delay in filing the appeal, disallowance of excess interest paid, addition of interest income, imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961, challenge to penalty imposition, nature of offense for penalty imposition, deduction claimed towards interest paid to partners, accuracy of income particulars, sustainability of penalty order.

Delay in Filing the Appeal:
The appeal was filed with a delay of 44 days, citing the partner's illness as a reason. The delay was condoned by the tribunal as it was deemed to be due to a reasonable cause, and the appeal was admitted for adjudication on merit.

Disallowance of Excess Interest Paid:
The Assessing Officer disallowed excess interest paid to partners @15% on their share capital, exceeding the permissible rate of 12% under section 40(b) of the Income Tax Act, 1961. The tribunal found the claim of deduction at 15% to be a bona fide error, supported by the fact that full particulars were disclosed to the Assessing Officer. The tribunal held that the disallowance of &8377; 4,74,095 was unjustified and deleted the penalty imposed under section 271(1)(c) of the Act.

Addition of Interest Income:
The Assessing Officer added back interest income from fixed deposits and other parties, leading to a penalty imposition under section 271(1)(c) of the Act. The tribunal noted that the penalty was sustained only on the addition of &8377; 4,74,095 as the major addition of &8377; 16,36,338 was deleted by the tribunal in a previous appeal. The tribunal found the penalty order unsustainable as the Assessing Officer failed to specify the exact offense committed by the assessee.

Challenge to Penalty Imposition:
The assessee challenged the penalty imposition under section 271(1)(c) of the Act, arguing that there was no intention to furnish inaccurate particulars of income. The tribunal agreed with the assessee, stating that the claim of deduction at 15% was a genuine mistake and that all relevant information was disclosed to the Assessing Officer. The penalty was deleted based on the lack of evidence for inaccurate income particulars.

Nature of Offense for Penalty Imposition:
The tribunal highlighted that the Assessing Officer did not specify the nature of the offense committed by the assessee when initiating penalty proceedings. The tribunal emphasized that the penalty order mentioned inaccurate particulars of income as the reason, but the initial assessment did not provide a clear basis for penalty imposition, rendering the penalty order unsustainable.

Deduction Claimed Towards Interest Paid to Partners:
The tribunal considered the deduction claimed towards interest paid to partners @15% as a bona fide error, given that no such deduction was claimed at a higher rate in previous assessment years. The tribunal found the explanation provided by the assessee plausible and held that there was no intention to furnish inaccurate particulars of income, leading to the deletion of the penalty imposed.

Accuracy of Income Particulars and Sustainability of Penalty Order:
The tribunal concluded that the assessee did not furnish inaccurate particulars of income and that the penalty imposed under section 271(1)(c) of the Act was unsustainable. The tribunal deleted the penalty as it was based on a genuine mistake in claiming interest deduction at a higher rate, which was not indicative of inaccurate income particulars.

This judgment showcases the tribunal's meticulous analysis of the issues surrounding the penalty imposition under the Income Tax Act, emphasizing the importance of clear grounds for penalty imposition and the genuineness of errors in income reporting.