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 the assessee made full disclosures and the disallowance of interest expenses was a debatable issue. The Revenue's appeal was dismissed, and the assessee's cross objection was deemed infructuous. It was concluded that there was no concealment of income or furnishing of inaccurate particulars, hence no penalty was levied under Section 271(1)(c). The order was pronounced on December 31, 2018.

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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.

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