HIGH COURT OF DELHI

Commissioner of Income-tax

v.

O.P. Lohia

MADAN B. LOKUR AND DR. S. MURALIDHAR, JJ.

IT APPEAL NO. 1052 OF 2007

November 1, 2007

Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment year 2002-03-Assessee claimed expenditure by way of interest on borrowed funds which was utilized for investment in shares - Assessing Officer disallowed said deduction and thereafter imposed penalty under section 271(1)(c) on assessee - Tribunal set aside order of penalty holding that there was no recording of satisfaction of Assessing Officer in order of assessment that penalty proceedings must be initiated - Tribunal on merit also held that claim of assessee for expenditure by way of interest on borrowed funds was based on a bonafide belief and that no contumacious conduct could be attributed to assessee - Whether Tribunal was justified - Held, yes

FACTS

The Assessing Officer imposed penalty under section 271(1)(c) on the assessee on the ground that the assessee had not offered any bonafide explanation for claiming deduction in respect of expenditure incurred, in the form of interest on borrowed funds, for investment in shares the income from which did not form part of the total income. The Commissioner (Appeals) upheld the penalty rejecting the plea that the penalty proceedings were bad for the reason that the Assessing Officer had not recorded his satisfaction in the assessment order that penalty proceedings should be initiated against the assessee. The Tribunal reversed the order of the Commissioner (Appeals), and held that since there was no recording of satisfaction of the Assessing Officer in the order of assessment that penalty proceedings must be initiated, the appeal preferred by the assessee should be allowed, it also allowed the appeal on merits.

HELD

Having gone through the assessment order, it was not possible to discern any satisfaction of the Assessing Officer that penalty proceedings must be initiated against the assessee under section 271(1)(c). [Para 10]

Apart from the above, it was also found that the assessee’s appeal had been allowed on merits by the Tribunal. It had been held that the claim of the assessee for expenditure by way of interest on borrowed funds was based on a bonafide belief and that no “contumacious conduct could be attributed” to the assessee. Having examined the matter on merits there was no infirmity in the view taken by the Tribunal in this regard. Therefore on merits as well no case for interference was made out. [Para 11]