2021 (4) TMI 527 - AT - Income Tax

Penalty levied u/s 271(1)(c) - disallowance u/s 36(1)(iii) - HELD THAT - As relying on ratio laid down in Reliance Petroproduct (P) Ltd 2010 (3) TMI 80 - SUPREME COURT and Ventura Textiles Ltd. 2020 (6) TMI 305 - BOMBAY HIGH COURT is squarely applicable to the instant case wherein held merely because assessee had claimed expenditure, which claim was not accepted or was not acceptable to revenue, that by itself would not attract penalty u/s 271(1)(c). Following the same, we delete the penalty levied by the AO u/s 271(1)(c) of the Act.- Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
1. Assessment and Disallowance of Interest Expenses:
- The assessee filed the return of income for AY 2014-15, declaring total income of ?49,32,500. The AO observed loans advanced without charging interest, leading to disallowance under section 36(1)(iii) of the Act. The interest expenses claimed were disallowed, resulting in a penalty of ?2,31,628 under section 271(1)(c).

2. Confirmation of Penalty by CIT(A):
- The CIT(A) confirmed the penalty, stating that the appellant failed to establish a nexus between unsecured loans and business activities. The absence of a fund flow statement and business justification for interest-free loans led to upholding the penalty.

3. Applicability of Legal Precedents:
- The assessee cited the Supreme Court judgment in CIT v. Reliance Petroproducts, emphasizing that a disallowed claim does not automatically attract penalty under section 271(1)(c). Reference was also made to the Bombay High Court's decision in Ventura Textiles Ltd. vs. CIT, which reiterated that making a wrong claim does not equate to furnishing inaccurate particulars of income.

4. ITAT's Decision and Rationale:
- The ITAT considered the legal precedents and concluded that the disallowed claim did not amount to furnishing inaccurate particulars of income. Relying on Reliance Petroproducts and Ventura Textiles judgments, the penalty of ?2,31,628 under section 271(1)(c) was deleted.

5. Final Verdict:
- The ITAT allowed the appeal filed by the assessee, pronouncing the order on 02/03/2021. The penalty levied by the AO was set aside based on the principles laid down in the legal precedents cited and the lack of evidence establishing deliberate concealment or inaccurate particulars of income.

This detailed analysis highlights the assessment, disallowance of interest expenses, confirmation of penalty by CIT(A), the relevance of legal precedents, ITAT's decision, and the final verdict in favor of the assessee, emphasizing the importance of accurately interpreting tax laws and precedents in penalty assessments under the Income Tax Act, 1961.