2023 (1) TMI 1208 - AT - Income Tax

Tribunal Overturns Income Tax Penalty, Emphasizes Burden of Proof

Galaxy Construction and Contractors Pvt. Ltd. Versus DCIT, Circle-1 (2), Pune.

The Tribunal found the penalty imposed under section 271(1)(c) of the Income Tax Act unjustified, directing the Assessing Officer to delete the penalty of ... Levy of penalty u/s 271(1)(c) - addition u/s 36(1)(iii) - appellant had failed to discharge the onus of demonstrating that the loans and advances are made for the business purpose - HELD THAT:- It is an admitted fact that the appellant had not agitated the additions in the appellate proceedings. It is clearly settled position of law that when an assessee not agitated the addition in the appellate proceedings does not amount to either concealment of income or furnishing of inaccurate particulars of income. We have carefully gone through the assessment order and find that the addition u/s 36(1)(iii) was made by the AO because the appellant had failed to demonstrate the advances to sister concern were made for the business purpose. A mere making claim which is not sustainable by law itself will not amount to furnish inaccurate particulars of income as held by the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. [2010 (3) TMI 80 - SUPREME COURT] Thus we are of the considered opinion that the appellant cannot be held guilty of furnishing inaccurate particulars of income and, therefore, the Assessing Officer was not justified in levy of penalty u/s 271(1)(c) - Decided in favour of assessee. Issues:Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for disallowance of interest u/s 36(1)(iii) - Failure to demonstrate advances made for business purpose - Validity of penalty order - Applicability of decision of Hon'ble Bombay High Court in CIT vs. Dalmia Dyechem Industries Ltd. - Validity of show-cause notice - Interpretation of furnishing inaccurate particulars of income.Analysis:1. Levy of Penalty under Section 271(1)(c):The appeal was against the levy of a penalty of Rs.34,50,500 under section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed by the Assessing Officer concerning the disallowance of interest under section 36(1)(iii). The appellant, a private limited company engaged in civil contracts, had not contested the additions made during the assessment. However, the Tribunal noted that failure to challenge additions in appellate proceedings does not automatically imply concealment of income or furnishing of inaccurate particulars of income. The Tribunal referred to the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., emphasizing that incorrect claims in law do not constitute furnishing inaccurate particulars of income.2. Failure to Demonstrate Advances for Business Purpose:The Assessing Officer had disallowed interest under section 36(1)(iii) due to the appellant's failure to prove that advances to a sister concern were made for business purposes. The Tribunal observed that merely making a claim that is not legally sustainable does not amount to furnishing inaccurate particulars of income. Quoting the Supreme Court, the Tribunal highlighted that the term 'particulars' refers to details in the return that are inaccurate, not exact, or incorrect. Since there was no finding that the details supplied by the appellant were false, erroneous, or incorrect, the penalty under section 271(1)(c) was deemed unjustified.3. Validity of Penalty Order and Show-Cause Notice:The Tribunal examined the validity of the penalty order and the show-cause notice. It noted that the appellant failed to substantiate that the advances were made for business purposes. The Tribunal rejected the contention that the penalty order was invalid due to a technical defect in the show-cause notice, citing a Bombay High Court decision. The Tribunal emphasized that non-striking of a relevant column in the notice does not invalidate penalty proceedings when the assessee is aware of the charges against them.4. Applicability of Legal Precedents:The appellant had argued that the decision of the Hon'ble Bombay High Court in CIT vs. Dalmia Dyechem Industries Ltd. was relevant to their case. However, the Tribunal upheld the penalty, stating that the appellant failed to demonstrate that the loans and advances were made for business purposes. The Tribunal also highlighted the importance of meeting the burden of proof in such cases.5. Final Decision:After considering the legal provisions and precedents, the Tribunal concluded that the penalty under section 271(1)(c) was unjustified. Therefore, the Tribunal directed the Assessing Officer to delete the penalty of Rs.34,50,500 imposed on the appellant. Ultimately, the appeal filed by the assessee was allowed, and the decision was pronounced on January 2, 2023.