MANISHA KAMAL BINANI,MUMBAI vs. ITO WD 20(2)(2), MUMBAI

The only grievance of the assessee relates to levy of penalty of Rs.4,82,454/- u/s.271(1)(c) in respect of disallowance of sum of Rs.1499132/- out of interest paid on OD against interest received on FD with same bank.

Rival contentions have been heard and record perused. As per the brief facts of the case, the assessee is an individual, who is engaged in the business of purchase of shares through IPO by getting loan/overdraft in the name of her proprietary concerns. She has filed her return of 2 income on 16-11-2007 declaring total income of Rs.1,98,873/-. The case was selected for scrutiny under CASS and during the course of assessment proceedings, the AO noticed that the gross interest income received was of Rs.15,13,632/- against which gross interest paid of Rs.14,99,133/- has been debited. The assessee has received interest on FDs amounting to Rs.15,00,965/- and paid interest on overdraft, term loan and other lenders amounting to Rs.14,99,132/-. The AO held that the said accounting effect is not allowable as deduction u/s.57(iii) of the Act. Accordingly, the AO disallowed the interest expenditure. Thereafter the AO also levied penalty u/s.271(1)(c) for the disallowance of interest. The AO’s action was confirmed by CIT(A), against which assessee is in further appeal before us.

We have considered rival contentions and found from the record that the assessee has submitted all the particulars of income and the assessee fully cooperated with the department to complete the scrutiny assessment and nothing was concealed from the department. The issue under consideration is squarely covered by the decision of Hon’ble Supreme Court in the case of Reliance Petroproducts Ltd. 322 ITR 158, wherein the Hon’ble Supreme Court has held as under :- Held: “A glance of provision of section 271(1)(c ) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate 3 particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. Therefore, it must be shown that the conditions under section 271(1)(c ) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was 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 exaggerated 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. Such contention could not be accepted 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 attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. Therefore, the appeal filed by the revenue had no merits and was to be dismissed.”