Standard Radiators Private Ltd Vs ACIT (ITAT Ahmedabad)
In the recent ruling by ITAT Ahmedabad, the case between Standard Radiators Pvt Ltd (the “Assessee”) and the Assistant Commissioner of Income Tax (ACIT), highlights an important decision related to the imposition of penalties for the misclassification of interest expenses. The Assessee contested a penalty levied due to the inaccurate portrayal of income particulars under section 271(1)(c) of the Income Tax Act, 1961.
Analysis: The dispute centered on an interest expense of Rs. 3,30,875.00 claimed by Standard Radiators, but classified as a capital expense by the AO, thus attracting a penalty. The Assessee argued that the claim was genuine, and was wrongly disallowed on the grounds of it needing to be capitalized. The tribunal held that there was no evidence of inaccuracy in the income details furnished, nor any intent of concealment of income. The penalty was seen as a result of a discrepancy between the income declared by the Assessee and that assessed by the AO, which should not automatically lead to a penalty.
Conclusion: The ITAT Ahmedabad ruling favored Standard Radiators Pvt Ltd, concluding that a simple difference in assessed and declared income doesn’t necessarily imply the furnishing of inaccurate particulars of income. This sets a significant precedent, suggesting that the characterization of an expense shouldn’t solely determine the imposition of penalties under section 271(1)(c). Such penalties should only be imposed where there is clear evidence of inaccurate details being furnished or income concealment.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income-tax(Appeal), dated 11/03/2022 Vadodara, arising in the matter of penalty order passed under s. 271(1)(c) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2013-2014.
2. The only issue raised by the assessee is that the learned CIT (A) erred in confirming the penalty of Rs. 1,40,000/- levied under section 271(1)(c) of the Act on account of furnishing inaccurate particulars of income.
3. The facts in brief are that the assessee is a private limited company and engaged in the business of manufacturing and selling of radiators. The AO during the proceedings found that the assessee has used borrowed money for giving advance towards the purchase of capital goods. However, the assessee has not capitalized the interest of Rs. 3,30,875.00 attributable to such advance. Therefore, the AO disallowed the same and added to the total income of the assessee. The AO also initiated penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of income which came to be confirmed vide order dated 29-03-2019. The aggrieved assessee preferred an appeal before the learned CIT(A) who confirmed the same.
4. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
5. The learned AR before us submitted that claim made by the assessee was genuine and the same was not doubted by the authorities below. However, the same was disallowed merely on the reasoning that it was to be capitalized. According to the learned AR, the claim of the assessee at the most can be regarded as wrong claim which is different from furnishing the inaccurate particulars of income. Thus, there cannot be any penalty under the provisions of section 271(1)(c) of the Act.
6. On the other hand, the learned DR before us contended that the assessee was not eligible for the deduction of the interest expenses. Therefore, the assessee has furnished inaccurate particular of income within the provisions of section 271(1)(c) of the Act. The learned DR vehemently supported the order of the Authorities Below.
7. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the interest expenses for Rs. 3,30,875/- was disallowed by holding that it was not revenue in nature as it relates to the advances given for the purchase of the capital goods. Therefore, the same is not allowable as deduction. Further, the AO held such claim is an act of furnishing inaccurate particular of income and levied the penalty of Rs. 1,40,000.00 being 100% of the amount of tax sought to be evaded under the provisions of section 271(1)(c) of the Act. On appeal by the assessee, the learned CIT(A) was pleased to confirm the same.
7.1 On perusal of the materials on record, we note there was no allegation evidencing that the amount of expenses claimed by the appellant assessee was not genuine or not correct. As such, the AO disallowed the same only for the reason that the interest expense was capital in nature. Therefore, the question of furnishing inaccurate particulars of income does not arise. It is only a case of claim made by the assessee which was not admitted by the AO. Thus, the AO calculates different total income than the income declared by the assessee and the difference between the income declared by assessee and assessed by the AO would not amount to furnishing of inaccurate particulars of income or concealment of income per say. Definitely this is not the intention of the legislator to treat every addition or disallowance in assessment proceeding as either concealment or furnishing inaccurate particular of the income and thereby levying the penalty. The phrase furnishing inaccurate particular of incomer has not been defined under the provisions of the Act. However, we note that the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt Ltd reported in 189 taxman 322 has discussed the term inaccurate particulars as “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”. Thus, to arrive at the conclusion that, the assessee has furnished inaccurate particulars of income, it has to be tested whether the detail furnished in the return of income is incorrect or erroneous or false. In other words the element of consciousness in furnishing inaccurate particulars of income coupled with circumstantial evidences should be present in the particular case. Unless, the characters of inaccurate particulars of income as discussed above are present in any particular case, the penalty provisions under section 271(1)(c) of the Act cannot be attracted.
7.2 Coming to the present case, we find that revenue authority nowhere brought any evidence on record that the information provided in the return of income is not true or false or not as per truth. There was no finding of the AO that amount of interest expense claimed by the assessee is not as per the truth. As such as per the AO, the interest expenses claimed by assessee were duly supported with the detail furnished by it (the assessee). However, the same was not allowed on the allegation that the interest was capital in nature. Thus, in our considered view, the provisions of 271(1)(c) of the Act cannot be attracted in the given facts and circumstances. In view of the above and after considering the facts in totality, we set aside the finding of the learned CIT (A) and direct the penalty levied by him under section 271(1)(c) of the Act. Hence the ground of appeal of the assessee is hereby allowed.
8. In the result, the appeal of the assessee is hereby allowed.
Order pronounced in the Court on 19/05/ 2023 at Ahmedabad.
