2023 (2) TMI 265 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance u/s 40(a)(ia) - payment of interest to India Bulls/Kotak Mahindra on which TDS was omitted to be deducted by the assessee required in terms of provision of Section 194A - HELD THAT - Tribunal has set aside the issue of disallowance under Section 40(a)(ia) to the file of the Assessing Officer for verification of such interest by the payees as their income and reversal of disallowance. The payment of interest to the payees is not in dispute. Thus, admittedly the interest expenses have been actually incurred. The disallowance of interest expenditure was attracted only due to non deduction of TDS and it cannot be said to be a case of concealment of income or furnishing of inaccurate particulars of income per se. The levy of penalty under Section 271(1)(c) is thus not attracted. Coupled with this, notice issued under Section 274 r.w. Section 271(1)(c) has been stated to be issued in a mechanical manner without striking of the inappropriate portion from the notice. It is thus not known the exact nature of default committed by the assessee. Hence when seen cumulative, assessee deserves to be exonerated from the clutches of penalty under Section 271(1)(c) of the Act. Appeal of the assessee is allowed.

Summary

Issues:
- Appeal against penalty orders passed by the Assessing Officer u/s.271(1)(c) of the Act for Assessment Years 2009-10, 2010-11, and 2011-12.

Analysis:

ITA No.5711/Del/2018 (Assessment Year 2009-10):
The appellant contested the penalty imposition of Rs.5,54,907/- for non-deduction of TDS on interest payments to India Bulls/Kotak Mahindra under Section 40(a)(ia) of the Act. The appellant argued that since the payees were reputable companies and had included the income in their returns, no penalty should be levied. The Tribunal found merit in the appellant's contentions, noting that the interest expenses were genuine, and the penalty under Section 271(1)(c) was not justified. It was observed that the notice issued for penalty lacked clarity, and the penalty was not warranted. Consequently, the penalty was set aside, and the appeal was allowed.

ITA No.5712/Del/2018 (Assessment Year 2010-11):
The appellant challenged the penalty imposed under Section 271(1)(c) amounting to Rs.11,02,740/- for receiving Rs.10 lakh from ten trusts alleged to be non-genuine. The appellant provided evidence of similar transactions in earlier years, payment of interest after TDS deduction, and trust assessments to support the claim of genuineness. The Tribunal acknowledged the appellant's arguments, emphasizing that penalty considerations differ from assessment proceedings. Given the doubts raised by the appellant's submissions, the penalty was deemed unsustainable, and it was directed to be deleted. Consequently, the appeal was allowed.

ITA No. 5713/Del/2018 (Assessment Year 2011-12):
In this appeal, the penalty of Rs.1,30,000/- imposed under Section 271(1)(c) for interest disallowance was contested. The appellant's arguments mirrored those in the previous year's appeal, emphasizing the lack of justification for the penalty based on similar grounds. Following the reasoning applied in the earlier years, the Tribunal found no basis for upholding the penalty and ordered its deletion. As a result, the appeal was allowed.

Conclusion:
In a consolidated decision, the Tribunal allowed all appeals by the assessee, setting aside the penalties imposed under Section 271(1)(c) for the respective assessment years. The Tribunal emphasized the genuine nature of the transactions, lack of justification for penalties, and discrepancies in penalty notices as key factors in reaching its decisions.