By Jagdish D. Shah, Jagdish T. Punjabi Chartered Accountants
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Section 271(1)(c) – Reduction of interest income
from expenses / WIP being a debatable issue, penalty u/s. 271(1)(c) is
not leviable notwithstanding that the assessee had not filed an appeal
on quantum addition.
Facts:
During the previous
year relevant to the assessment year 2008-08, the assessee company
received interest income of Rs. 5,99,644. In the return of income filed
by the assessee, this income was reduced from expenses and the net
expenses were carried forward as work-in-progress.
The Assessing
Officer (AO) while assessing the total income treated this sum of Rs.
5,99,644 to be income of the assessee. The assessee accepted the
addition. On the said addition, the AO levied penalty, u/s 271(1)(c),
amounting to Rs. 1,82,289.
Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The
Tribunal found that the assessee has disclosed the relevant facts in
the return of income. The fact of not filing further appeal on quantum
addition should not come in the way of deciding the penalty proceedings.
The Tribunal was of the opinion that the issue whether interest income
was rightly set off against the development expenses or was to be
offered as income was a debatable issue. Accordingly, penalty u/s.
271(1)(c) is not sustainable. The Tribunal decided the appeal in favor
of the assessee. The appeal filed by assessee was allowed.
