Penalty under Section 271(1)(c) deleted as interest claimed is revenue expenditure, not inaccurate particulars

The ITAT Bangalore upheld the CIT(A)'s order deleting the penalty under section 271(1)(c) imposed on the assessee for claiming interest payment as revenue expenditure. The AO treated the interest as capital expenditure and levied the penalty for denying the assessee's claim. The tribunal held that mere denial of a claim on the nature of expenditure does not amount to furnishing inaccurate particulars, thus penalty was not justified. Reliance was placed on the SC ruling that no penalty can be levied for claims denied by the revenue. The appeal by the AO was dismissed, confirming the penalty deletion in favor of the assessee.

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ISSUES:

Whether penalty under section 271(1)(c) of the Income Tax Act can be levied when the Assessing Officer has not recorded satisfaction in the assessment order for initiation of penalty proceedings.Whether penalty under section 271(1)(c) is sustainable when the penalty notice does not specify the appropriate limb of the section under which penalty proceedings are initiated.Whether levy of penalty under section 271(1)(c) is justified on the ground that the assessee claimed interest expenditure as revenue expenditure which was disallowed and treated as pre-operative (capital) expenditure by the Assessing Officer.

RULINGS / HOLDINGS:

The penalty under section 271(1)(c) was deleted because the Assessing Officer "has not recorded its satisfaction in the assessment order for initiation of penalty proceedings," and the penalty notice "has not specified the limb of section 271(1)(c) for initiating penalty proceedings," thereby rendering the penalty not sustainable.The penalty could not be sustained on merit as the disallowance of interest expenditure was a mere denial of the claim and did not amount to furnishing "inaccurate particular of income."Following the Hon'ble Karnataka High Court decisions in CIT v. Manjunatha Cotton & Ginning Factory and CIT v. SSA's Emerald Meadows, the penalty was rightly deleted for procedural non-compliance regarding specification of the appropriate limb of section 271(1)(c).The Hon'ble Supreme Court ruling in CIT v. Reliance Petro Products (P.) Ltd. was applied to hold that "no penalty can be levied in respect of any claim made which has been denied by the revenue," supporting deletion of penalty on merits.

RATIONALE:

The legal framework applied includes section 271(1)(c) of the Income Tax Act which mandates that penalty for furnishing inaccurate particulars can only be levied after the Assessing Officer records satisfaction and specifies the correct limb of the section in the penalty notice.The court relied on precedents from the Hon'ble Karnataka High Court emphasizing procedural compliance in penalty initiation, specifically the necessity of recording satisfaction and specifying the limb of section 271(1)(c) in the penalty notice.The Supreme Court precedent clarified that mere denial of a claim by the revenue does not constitute furnishing inaccurate particulars, hence no penalty under section 271(1)(c) can be imposed for such denial.No dissent or doctrinal shift was noted; the decision affirms established procedural safeguards and substantive limits on penalty imposition under section 271(1)(c).

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