Appeal Dismissed: Penalty Cancelled for Interest Disallowance and Deferred Tax Reduction

The Tribunal dismissed the appeal, upholding the CIT(A)'s decision to cancel the penalty under section 271(1)(c) for both issues related to interest disallowance and deferred tax reduction. The Tribunal emphasized the lack of concealment or furnishing of inaccurate particulars and the retrospective nature of the relevant amendment affecting the assessee's knowledge.

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Issues:
1. Disallowance of interest on diversion of funds to sister concern.
2. Reduction of deferred tax from net profit for MAT purposes.

Issue 1: Disallowance of Interest on Diversion of Funds to Sister Concern

The appeal was against the cancellation of a penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2007-08. The Assessing Officer disallowed interest on funds diverted to a sister concern, citing lack of commercial expediency. The penalty was challenged on the grounds that the disallowance was not concealment of income or furnishing of inaccurate particulars. The CIT(A) canceled the penalty, citing the decision in Reliance Petroproducts Pvt. Ltd. case by the Supreme Court. The Tribunal upheld the CIT(A)'s decision, emphasizing that no concealment or furnishing of inaccurate particulars occurred. The Tribunal agreed that the penalty was unjustified as no incorrect or false details were provided in the return.

Issue 2: Reduction of Deferred Tax from Net Profit for MAT Purposes

The Assessing Officer added deferred tax to the book profit under section 115JB of the Act, claiming it should only be reduced if credited to the Profit & Loss Account. The penalty under section 271(1)(c) was levied, but the CIT(A) canceled it, noting that the amendment regarding deferred tax was made retrospectively. The Tribunal agreed with the CIT(A), stating that the assessee could not have known about the amendment in the relevant year. Additionally, a circular by CBDT clarified that where tax under normal provisions is less than under MAT provisions, no penalty should be imposed. The Tribunal upheld the CIT(A)'s decision, emphasizing that prior to the amendment, no penalty could be levied in such cases.

In conclusion, the Tribunal dismissed the appeal, upholding the CIT(A)'s decision to cancel the penalty under section 271(1)(c) for both issues related to interest disallowance and deferred tax reduction. The Tribunal's decision was based on the lack of concealment or furnishing of inaccurate particulars and the retrospective nature of the relevant amendment affecting the assessee's knowledge.

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