2022 (3) TMI 842 - AT - Income Tax

Penalty u/s 271(1)(c) - Disallowance u/s 43B - HELD THAT - Facts on record clearly reveal that all material relating to the interest component was furnished before the departmental authority. In fact, Commissioner (Appeals) has found the interest on OD account from the profit and loss account of the assessee. Thus, in our considered opinion, the explanation of the assessee that it is a bona fide claim of deduction, appears to be reasonable. It is to be noted that penalty u/s 271(1)(c) of the Act is not automatic. If assessee offers reasonable explanation, then, penalty cannot be imposed. In the facts of the present appeal, in our considered opinion, the deduction claimed by the assessee is not due to any mala fide intention but on a bona fide belief. In any case of the matter, as held by the Hon'ble Supreme Court in case of CIT vs. Reliance Petro Products 2010 (3) TMI 19 - SUPREME COURT disallowance of a deduction claimed by the assessee by itself cannot lead to furnishing of any inaccurate particulars of income - Decided in favour of assessee.

Summary

Issues:
- Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2015-16 based on disallowance of interest claimed by the assessee on OD account.

Analysis:
1. The appeal was filed by the assessee against the penalty imposed by the Commissioner of Income-Tax (Appeals) under Section 271(1)(c) for assessment year 2015-16. The Commissioner had imposed a penalty of &8377; 13,23,672 based on disallowance of interest claimed by the assessee on the OD account with Punjab National Bank.

2. The assessee, a resident company, had filed its return of income declaring nil income after set off of loss. The Assessing Officer completed the assessment under Section 144 of the Act, making additions resulting in a total income of &8377; 73,77,968. The Commissioner (Appeals) granted relief to the assessee by deleting most additions but disallowed the deduction claimed for interest on the OD account, leading to the penalty imposition under Section 271(1)(c).

3. The counsel for the assessee argued that the interest debited to the OD account reduced the OD limit, and the liability was increased in the balance sheet. The counsel contended that all relevant information was provided, and the claim was made in good faith. Therefore, the penalty under Section 271(1)(c) should not be imposed.

4. The Tribunal found that the interest charged to the OD account was debited to the profit and loss account and allowed by the Assessing Officer. The Tribunal noted that the assessee had increased its liability to that extent and the OD account limit was reduced accordingly. The material placed on record supported the assessee's claim.

5. The Tribunal held that the explanation provided by the assessee was reasonable and made in good faith. Referring to the legal principle established by the Supreme Court, the Tribunal concluded that disallowance of a deduction claimed by the assessee does not automatically lead to furnishing inaccurate particulars of income. Therefore, the Tribunal deleted the penalty imposed under Section 271(1)(c) of the Act.

6. In conclusion, the Tribunal allowed the appeal, ruling that the penalty imposed on the assessee was unwarranted. The judgment was pronounced on 11th March 2022 by the Tribunal consisting of Shri Saktijit Dey, Judicial Member, and Dr. Brr Kumar, Accountant Member.