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Facts
The assessee, engaged in public transportation, claimed interest expenses on loans taken for acquiring commercial vehicles as revenue expenditure. The Assessing Officer disallowed Rs. 21,26,535/- under section 36(1)(iii), treating it as capital expenditure, and levied a penalty of Rs. 6,89,954/- under section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) upheld both the disallowance and the penalty.
Held
The Tribunal, relying on Supreme Court judgments, held that merely making an incorrect claim, especially when all details are disclosed, does not amount to furnishing inaccurate particulars of income warranting a penalty under section 271(1)(c). The assessee was in bona fide belief that the interest was revenue expenditure and had disclosed all necessary particulars.
Key Issues
Whether penalty under section 271(1)(c) is leviable when an assessee makes an incorrect claim for interest expenditure, which is treated as capital in nature, but has disclosed all relevant particulars.
Sections Cited
271(1)(c), 36(1)(iii), 14A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Shri T.R. Senthil Kumar & Shri Narendra Prasad Sinha
Assessee Represented: Shri Atik Jain, A.R. Revenue Represented: Shri Abhijit, Sr.D.R. Date of hearing : 21-01-2026 Date of pronouncement : 28-01-2026 आदेश/ORDER PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER
This appeal is filed by the Assessee as against the appellate order dated 08-09-2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the partial confirmation of penalty levied under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2014-15.
Brief facts of the case is that the assessee is Private Limited Company engaged in the business of public transportation in various cities and dealership business. For the Asst. Year 2013-14, assessee filed its Return of Income on 10-09-2014 declaring total income of Rs. 5,79,96,700/-. The return was taken for scrutiny assessment and assessment was passed making following disallowances: (i) Disallowance u/s. 14A of Rs. 81,667/- (ii) Disallowance of expenses for increased in authorized share capital of Rs. 1,80,000/- (iii) Disallowance u/s. 36(1)(iii) of Rs.21,26,536/- The A.O. also initiated penalty proceedings.
Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A) who has deleted the addition made u/s. 14A of the Act, however confirmed the remaining two additions. The assessee has not preferred further appeal against the remaining two additions. Thereafter the assessing officer proceeded with the penalty proceedings and levied penalty of Rs.6,89,954/- on the disallowance made u/s. 36(1)(iii) of the Act.
Aggrieved against the penalty order, assessee filed an appeal before Ld. CIT(A) who has also confirmed the levy of penalty by holding that the assessee has furnished inaccurate particulars of income relating to the addition made u/s. 36(1)(iii) of the Act, thereby upheld the levy of penalty amounting to Rs.6,89,954/-.
Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming the action of Ld. A.O. in levying penalty of Rs. 6,89,954/- u/s. 271(1)(c) of the Income Tax Act, 1961.
2. Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.
6. Heard rival submissions and perused the materials available on record. The brief fact on the disallowance made u/s. 36(1)(iii) is the assessee made addition (purchase) to the fixed assets in the nature of commercial vehicles amounting to Rs.11,39,78,622/-. The assessee was asked to furnish the details of date of acquisition, source of funds and when the assets (Volvo buses) put to use and compute the interest cost attributable to the loans taken by the assessee and utilized towards acquisition of such assets. The assessee explained that it purchased commercial vehicles which are of two types (1) is ready to use Volvo bus and (2) body chassis which were thereafter worked upon before the vehicle was put to use. There were a time gap between the acquisition of the assets and their original use in the second category of assets. The assessee submitted that the date of acquisition, amount of loans, date of put to use and interest details as follows:
Assets Amount of Date of Date of loan Date of Put Interest upto Loan purchase to use assets put to use as repayment schedule of loan Bus & Body 9998292 29.03.2013 13.04.2013 27.05.2013 83310 Bus 8c Body 28926252 28.06.2013 to 28.06.2013 24.12.2013 1170682 13.08.2013 Bus & Body 31023000 31.08.2013 24.12.2013 781133 Bus & Body 366925 31.05.2013 to 18.06.2013 09.10.2013 & 91410 19.06.2016 21.10.2013 Bus & Body 10341000 23.10.2013 24.12.2013 0 Volvo Bus 20000000 07.09.2013 06.09.2013 13.09.2013 0 Volvo Bus 20000000 07.09.2013 31.05.2013 13.09.2013 0 6.1. On perusal of the same, the assessing officer proposed to disallow the interest cost amounting to Rs.21,26,535/- pertain to the period before the assets put to use by the assessee. The assessee could not explain the details, therefore the assessing officer held these expenses are capital in nature which are required to be capitalized with the cost of the assets and not to be allowed as revenue expenditure as claimed thereby made the addition of Rs.21,26,535/- u/s. 36(1)(iii) of the Act.
6.2. On appeal against the quantum order, the Ld. CIT(A) confirmed the addition but no further appeal preferred by the assessee. Thereafter Ld. A.O. levied minimum penalty u/s. 271(1)(c) of the Act of Rs.6,89,594/-.
6.3. Ld. Counsel for the assessee submitted that there was neither concealment of primary facts nor furnishing inaccurate particulars of income before the Income Tax Authorities. The assessee was in bona-fide belief that after purchase of body chassis and convert into bus is passive put to use. Further the timing difference and interest prior to put to use (Registration certificate, date) were to be capitalized and not to be allowed as revenue expenditure is highly debatable issue. Though it is a legal claim of the assessee not allowed by the department, the same cannot tantamount to furnishing inaccurate particulars of income as held by the Hon’ble Supreme Court in the case of Reliance Petro Products Pvt. ltd. reported in 189 taxmann.com 322.
6.4. Ld. Counsel also placed on record on similar disallowance u/s. 36(1)(iii) wherein Chandigarh Bench of ITAT in M/s. Jain Shawis & Textile Mills vs. ACIT in dated 16-03-2016 cancelled the levy of penalty u/s. 271(1)(c) of the Act. Similarly in the case of ACIT vs. M/s. Vyanjan Hotel Pvt. Ltd. in dated 31-12-2018 and Delhi Tribunal in the case of M/s. Lala harbhagwan Dass Memorial & Dr. Prem Hospital (P.) Ltd. vs. ITO in dated 13-04-2012. Therefore Ld. Counsel requested to delete the penalty levied u/s. 271(1(c) of the Act.
Per contra Ld. Sr. D.R. appearing for the Revenue strongly supported the orders passed by the Lower Authorities and requested to confirm the levy of penalty u/s. 271(1)(c) of the Act, specially when the assessee has not preferred further appeal against the quantum addition which was confirmed by Ld. CIT(A).
We have given our thoughtful consideration and perused the materials available on record. During the assessment proceedings, the assessee was requested to give the details of the purchase of new commercial vehicles and the interest details and the date of put to use the commercial vehicles, which were clearly declared by the assessee during the assessment proceedings. Though the assessing officer disallowed the expenses of Rs. 21,26,535/- being capital in nature and required to be capitalized with the cost of the assets and not to be allowed as revenue expenditure. This issue has attained finality.
8.1. Ld. Counsel for the assessee also submitted that in subsequent year, assessee company not made such claim and the interest expense is capitalized to the capital goods. Thus it cannot be said that the assessee has made inaccurate particulars of income. The Hon’ble Supreme Court has held that making incorrect claim cannot tantamount to furnishing inaccurate particulars. Hon’ble Supreme Court held if we accept the contention of the Revenue then in case of every Return whether the claim is not accepted by the assessing officer for any reason, the assessee will invite penalty u/s. 271(1)(c) and which is not the clear intendment of the legislature by observing as follows:
“…10. It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an aggregated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of very Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.
In this behalf the observations of this Court made in Sree Krishna Electrical v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return." 8.2. Thus in our considered view, Ld. CIT(A) is not correct in confirming the levy of penalty u/s. 271(1)(c) of the Act, since making an incorrect claim by the assessee, cannot amounts to furnishing inaccurate particulars of income. Thus the grounds raised by the assessee is hereby allowed.
In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court on 28 -01-2026