2014 (7) TMI 950 - AT - Income Tax

Tribunal confirms penalty for disallowed interest claim & income suppression by doctor under Income Tax Act

The Tribunal upheld the penalty under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2003-04 against the appellant, a doctor, for disallowed ... Penalty u/s 271(1)(c) - Interest expenses disallowed u/s 14A – Concealment and suppression of income - Held that:- CIT(A) found that both the Explanation 1(A) and Explanation 1(B) to section 271(1)(c) stood attracted in the case - there was no nexus between the interest paid and her professional income, the assessee's claim was a deliberate attempt to suppress her professional income, and her case was without any explanation, attracting Explanation 1(A). In-as-much as the assessee had been unable to substantiate her explanation that the loan to the company was given with intent to earn interest, Explanation 1(B) would stand attracted - following the decision in CIT vs. Zoom Communication (P.) Ltd. [2010 (5) TMI 34 - DELHI HIGH COURT] - levy of penalty is upheld – Decided against Assessee. Issues:Levy of penalty u/s.271(1)(c) of the Income Tax Act, 1961 for A.Y. 2003-04 based on disallowed interest claim and alleged suppression of income.Analysis:1. The case involved an appeal against the Commissioner of Income Tax (Appeals)-3, Mumbai's order confirming the penalty under section 271(1)(c) of the Income Tax Act, 1961. The appellant, a doctor, claimed interest on a loan from HDFC Bank transferred to a company where she was a director. The interest claim was disallowed due to lack of nexus with her professional income, invoking section 14A.2. Penalty proceedings were initiated, alleging willful income suppression by the appellant. The penalty was levied based on Explanation 1 to section 271(1)(c), as the appellant failed to provide a plausible explanation. The first appellate authority confirmed the penalty under Explanation 1(A) and 1(B) of the section, as the appellant's explanations lacked substantiation.3. The appellant's arguments regarding the disallowance under section 14A were refuted, as the loan was interest-bearing and not tax-exempt. The basis for the interest claim was not adequately explained, and no evidence was presented to support the appellant's contentions. The appellant's reliance on certain case laws was found to be irrelevant to the present case.4. The Tribunal upheld the penalty levy due to the appellant's failure to provide a satisfactory explanation for the interest claim and alleged suppression of income. The decision was based on established legal principles and precedents cited by the apex court and the Revenue.5. The appellant's appeal was dismissed, and the penalty was upheld by the Tribunal, emphasizing the importance of providing a valid explanation to avoid penalties under section 271(1)(c) of the Income Tax Act, 1961.