In a judgement that will clear the air on the tricky issue of the income-tax department’s power to levy penalties on assessees, the Supreme Court has held that a penalty cannot be levied merely because the I-T authorities and taxpayers hold divergent views on calculation of income.
The SC ruling went in favour of Reliance Petroproducts. The apex court held that the I-T department cannot levy penalty on a taxpayer if his claim for deduction is not acceptable to the tax authorities. Penalty is leviable only if there is proven concealment of income.
In this case, the I-T officials had rejected the company’s claim for deduction on its interest expenditure and levied a penalty on the ground of furnishing inaccurate particulars of income. Under the I-T Act, furnishing inaccurate particulars of income attracts a penalty. In the department’s view making incorrect claims is the same as furnishing incorrect income details.
According to the I-T department, the interest expenditure did not merit deduction because I-T laws provide for deduction only for interest paid for capital borrowed for the purpose of business or profession. The interest payments in this case did not fall into this category and hence was not deductible. Therefore, the claim for deduction is incorrect.
Reliance Petroproducts took the stand that the I-T laws do not provide for penalty unless there is a concealment of income or furnishing of incorrect details of income. The company also pointed out that its interpretation of the issue had been accepted by an appellate commissioner and the Income-Tax Appellate Tribunal in the previous year.
SC observed that the terms “furnishing inaccurate particulars of income” is not defined in the Income-Tax Act, but reading the words in conjunction they must mean the details furnished in the returns are not accurate. The apex court further observed that Reliance Petroproducts has furnished all details of its income.