2025 (8) TMI 45 - AT - Income Tax

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

DCIT – Central Circle – 1 (2), Bengaluru Versus M/s. Manipal Hospitals (Bangalore) Private Limited

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 ... Penalty u/s 271(1)(c) - recording proper reason and selecting appropriate limb as mentioned in section - CIT(A) deleted penalty levy - treatment of interest payment claimed by the assessee as revenue expenditure but according to the AO same was pre-operative expenditure HELD THAT:- There was a disallowance of this interest income but treated the same as capital expenditure by the AO which is subject to depreciation. Thus, the penalty was levied because claim of expenditure as revenue expenditure was denied but was treated as capital expenditure. We do not find that the assessee has furnished any inaccurate particulars with respect to the claim of deduction of interest expenditure as revenue expenditure. It is mere denial of accepting the claim of the assessee whether the expenditure is capital or revenue in nature. On this aspect we do not find that a penalty under section 271(1)(c) of the Act could have been levied. Hon’ble Supreme Court in the case of CIT v. Reliance Petro Products (P.) Ltd [2010 (3) TMI 80 - SUPREME COURT] has held that no penalty can be levied in respect of any claim made which has been denied by the revenue. CIT(A) though has not dealt with the merits but even on the merits penalty u/s 271(1)(c) is not sustainable. Accordingly, we find no merit in the appeal by the AO and confirm the order of the CIT(A) deleting the penalty. Decided in favour of assessee. 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).