2019 (3) TMI 70 - AT - Income Tax

Tribunal Upheld Decision to Delete Penalty under Income Tax Act Section 271(1)(c)

The Tribunal upheld the Commissioner of Income Tax (Appeals)' decision to delete the penalty under Section 271(1)(c) of the Income Tax Act, stating that ... Penalty u/s 271(1)(c) - deduction u/s. 36(1)(iii) on the interest expenses on borrowed funds utilized for purchase of inventories / stock in trade - AO held that interest expenses cannot be allowed as deduction - complete disclosure of the details of the transactions - HELD THAT:- No infirmity in the order passed by the CIT(A) in deleting the penalty levied u/s. 271(1)(c) as the assessee has made complete disclosure of details with regard to the claim for deduction u/s. 36(1)(iii) on the interest expenses in respect of the flats purchased and shown in the Books of Accounts as well as in the return of income. Further, whether the assessee is entitled for deduction U/s. 36(1)(iii) of the Act on the interest expenses on borrowed funds utilized for purchase of inventories / stock in trade is a debatable issue. Thus, we hold that there is neither concealment of income nor furnishing of inaccurate particulars of income by the assessee in respect of its claim for interest expenses. Hence no penalty is leviable u/s. 271(1)(c) of the Act - Decided in favour of assessee. Loss incurred by the assessee on account of debiting the interest expenses to the Profit and Loss Account, is not allowable to carry forward - assessee filed belated return of income - There is no taxes ought to be evaded by the assessee as the assessee has not carried forward loss to the subsequent years. - HELD THAT:- loss arising out of claim of interest could also be not carried forward as the assessee filed belated return of income and therefore there is no loss to the Revenue. Hence no penalty is leviable u/s. 271(1)(c) of the Act - Decided in favour of assessee. Issues Involved:1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.2. Disallowance of interest expenses under Section 36(1)(iii) of the Income Tax Act.3. Filing of a belated return and its implications on carrying forward losses.4. Full disclosure of facts and its impact on penalty proceedings.Issue-wise Detailed Analysis:1. Deletion of Penalty Levied Under Section 271(1)(c):The Revenue challenged the order of the Commissioner of Income Tax (Appeals) [Ld.CIT(A)] which deleted the penalty levied under Section 271(1)(c) of the Income Tax Act. The Assessing Officer (AO) had levied a penalty at 150% of the amount sought to be evaded, asserting that the assessee had furnished inaccurate particulars of income by claiming interest expenses on loans used to purchase flats, which were not put to use for business purposes. The Ld.CIT(A) held that mere making of a claim which is not maintainable in law does not amount to furnishing inaccurate particulars of income, citing the Supreme Court decision in CIT v. Reliance Petro Products (P.) Ltd. [322 ITR 158].2. Disallowance of Interest Expenses Under Section 36(1)(iii):The AO disallowed the interest expenses claimed by the assessee under Section 36(1)(iii) of the Act, on the grounds that the flats purchased were not put to use for business purposes. The assessee argued that the interest paid on capital borrowed for business purposes, including the purchase of inventories, should be allowable under Section 36(1)(iii). The assessee cited decisions from the Bombay High Court and Jaipur Bench of ITAT to support this claim.3. Filing of a Belated Return and Its Implications on Carrying Forward Losses:The assessee filed a belated return for the Assessment Year 2012-13, declaring a loss of Rs. 1,34,94,930/-. Due to the belated filing, the loss could not be carried forward to subsequent years, and the assessee did not claim such carryforward. The AO initiated penalty proceedings based on the disallowance of interest expenses, but the Ld.CIT(A) noted that since the assessee did not carry forward the loss, there was no intent to evade taxes, and thus no loss to the Revenue.4. Full Disclosure of Facts and Its Impact on Penalty Proceedings:The Ld.CIT(A) observed that the assessee had made a full disclosure of the interest expenses in the Books of Accounts and the return of income. The Ld.CIT(A) emphasized that penalty under Section 271(1)(c) is not justified where there is full disclosure, even if the claim is ultimately disallowed. The Supreme Court in Reliance Petro Products (P.) Ltd. held that mere rejection of a claim does not amount to concealment of income if the details provided are accurate.Conclusion:The Tribunal upheld the Ld.CIT(A)'s decision to delete the penalty levied under Section 271(1)(c), agreeing that the assessee had made complete disclosures and that the disallowance of the interest claim was a debatable issue. Consequently, the appeal of the Revenue was dismissed, and the cross objection filed by the assessee was deemed infructuous. The Tribunal concluded that there was no concealment of income or furnishing of inaccurate particulars by the assessee, thus no penalty was leviable under Section 271(1)(c). The order was pronounced in the open court on December 31, 2018.