INCOME TAX ACT, 1961

Section 271(1)(c)

Penalty under section 271(1)(c) - Leviability - Disallowance of interest expenses - No concealment of fact per se

AO found that assessee-company claimed interest expenses under section 36(1)(iii) on money borrowed by it. He also found that assessee had advanced certain interest free funds to its associate. Accordingly, AO disallowed proportionate interest expenses attributable to interest-free advances on the ground that interest paid on borrowed funds was diverted towards interest free advances. On such disallowance, AO also imposed penalty under section 271(1)(c) on alleged 'furnishing of inaccurate particulars of income'. Held: To attract penalty under section 271(1)(c), it is necessary that there must be concealment by assessee of particulars of his income or furnishing of inaccurate particulars of income. Disallowance of certain expenditure on estimated basis actually incurred on the grounds of lack of commercial expediency is neither concealment of any particulars of income per se nor furnishing of inaccurate particulars of income as such. AO in the instant case disallowed a portion of interest expenditure on proportionate basis on the ground that the assessee lent money without charging interest. It was not the case of AO that the assessee had not incurred any interest expenditure as claimed. The claim of expenditure towards interest made, at best, be taken as erroneous claim by the assessee. Such claim made in a bona fide manner could not lead to imposition of penalty. Further, penalty cannot be imposed unless the action of assessee per se is dishonest, mala fide and amounting to concealment of facts. In instant case, there being no concealment of fact per se, imposition of penalty was not justified and hence, the penalty levied under section 271(1)(c) was deleted.

REFERRED : CIT v. M/s. Dalmia Dyechem Industries Ltd, ITA No. 1396 of 2013 dt. 6-7-2015 : 2015 TaxPub(DT) 2965 (Bom-HC)

FAVOUR : In assessee's favour

A.Y. : 2012-13

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