Making of a Claim which is not Sustainable in Law would not render Penal Liability: ITAT [Read Order]

The Income Tax Appellate Tribunal recently held that mere making of a claim which is not sustainable in law would not amount to furnishing of incorrect particulars for the purpose of levying penalty under section 271(1)(c) of the Income Tax Act.

The assessee, a cooperative society, claimed an exemption of Rs.1.45 crores under section 80P of the Income Tax Act, 1961. During the assessment proceedings, it was found that assessee had received interest of Rs.17, 67,059 which is also claimed exempt. Among this assessee claimed an interest payment of Rs.11, 92,784. Finally, assessment was completed at net taxable income of Rs.5, 74,275.

However, the proceedings under section 263 were initiated and it was noticed that interest of Rs.11, 92,784 could not have been deducted out of the interest recovered in terms of Section 14A of the I.T. Act. The Ld. CIT directed the A.O. to make fresh assessment and the assessee was directed to explain the reason for interest allowed may not be added to the income of assessee as the same is interest on loan to earn exempt income under section 80P (2) of the Income Tax Act in terms of Section 14A.

The assessee agreed with the addition made by the AO. Subsequently, the Officer levied a penalty under section 271(1) (c) of the I.T. Act. When the assessee went before CIT (A), the appeal was, however, dismissed.

Aggrieved, assessee carried the matter to the tribunal. The bench found that penalty is not leviable in the matter considering the fact that the assessee agreed for addition before A.O. In such facts and circumstances, it is clear that assessee declared complete facts before A.O.

The bench comprising of Judicial Member Bhavnesh Saini and Accountant Member L.P Sahu ordered “Therefore, it is not the case of concealment of particulars of income. Ultimately, it is a case where expenses have not been allowed. Therefore, mere making a claim which is not sustainable in Law, by itself would not amount to furnishing inaccurate particulars of income or to conceal the particulars of income.”