No Penalty for Concealment Can Be Levied When Returned Interest Income Is Accepted Without Additions

By | July 15, 2026
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No Penalty for Concealment Can Be Levied When Returned Interest Income Is Accepted Without Additions

Issue

Whether a penalty for concealment of chargeable interest or furnishing inaccurate particulars under Section 13 of the Interest Tax Act, 1974 can be legally sustained when the Assessing Officer accepts the assessee’s filed returns without making any additions or deductions, and lower authorities concurrently find a complete absence of mala fide intent.

Facts

  • The Revenue issued notices under Section 10 of the Interest Tax Act, 1974, requiring the assessee to furnish returns of chargeable interest for the assessment years 1996-97 to 2000-01.

  • The assessee initially responded stating that it harbored a bona fide belief that it was not liable to pay interest tax under the Act.

  • Subsequently, following a notice issued under Section 8(1), the assessee complied and filed its returns of interest tax.

  • The Assessing Officer completed the assessments under Section 8(2) read with Section 10 by accepting the exact chargeable interest disclosed by the assessee, without making any additions or deductions.

  • Despite accepting the returned income as is, the Assessing Officer proceeded to levy a penalty under Section 13 of the Act for concealment of chargeable interest.

  • The Commissioner (Appeals) deleted the penalty, noting that the interest details were already available in the income-tax records, the assessee acted in good faith, and the returns were accepted without change; the Income Tax Appellate Tribunal subsequently upheld this deletion.

Decision

  • In favor of the Assessee: Since the Assessing Officer accepted the interest tax returns exactly as filed by the assessee without making any upward adjustments or additions, the factual foundation for concealment does not exist.

  • In favor of the Assessee: The concurrent findings of fact recorded by the Commissioner (Appeals) and the Tribunal conclusively established that the assessee acted under a bona fide belief and lacked any mala fide intention.

  • In favor of the Assessee: In the absence of any variance between the assessed income and the returned income, the question of imposing a penalty for concealment or furnishing inaccurate particulars under Section 13 simply does not arise, and the deletion of the penalty is affirmed.

Key Takeaways

  • Additions Are a Prerequisite for Concealment: A penalty for concealment or furnishing inaccurate particulars cannot stand in a vacuum; if the revenue authority accepts the taxpayer’s returned figures without making any additions, there is no technical “concealment” to penalize.

  • Bona Fide Belief Negates Penalty: A delayed filing driven by an honest, bona fide belief regarding non-liability—especially when the underlying financial data is already transparently available in parallel income-tax records—negates the presence of mala fide intent required to trigger penal provisions.

HIGH COURT OF GUJARAT
Commissioner of Income-tax
v.
Aaspas Investment (P.) Ltd.*
BHARGAV D. KARIA and Pranav Trivedi, JJ.
R/Tax Appeal Nos. 1019 to 1023 of 2009†
JUNE  11, 2026
Ms. Maithili D. Mehta for the Appellant. S.N. Divatia for the Respondent.
JUDGMENT
Bhargav D. Karia, J. – Heard learned Senior Standing Counsel Ms. Maithili Mehta for the appellant and learned advocate S.N.Divatia for the opponent.
2. These appeals are filed under section 260A of the Income Tax Act, 1961 [for short ‘the Act’] read with section 21 of the Interest Tax Act, 1974, by the Revenue being aggrieved by the common Judgement and Order dated 08.08.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad, (for short ‘the Tribunal’) in Interest Tax Appeals No. 20/Ahd/2004 for Assessment Year 1996-1997 to 2000-2001.
3. The Appeals are admitted for consideration of following substantial question of law:
“Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the penalty levied under section 13 of the Interest Tax Act, 1974?”
4. Brief facts of the case are that a notice under section 10 of the Interest Tax Act, 1974 was issued on 22.03.2002 requiring the respondent-assessee to furnish its return of income for the Assessment Years 1996-97 to 2000-01.
4.1 The respondent-Assessee, by letter dated 20.04.2022, submitted that it was not liable to tax under the Interest Tax Act, 1974.
4.2 Thereafter, a notice under section 8(1) of the Interest Tax Act, 1974, was issued by the Assessing Officer. In response, the assessee filed the returns of Interest Tax on 26.02.2003. The Assessing Officer passed the Assessment Order on 26.03.2003 under section 8(2) read with section 10 of the Interest Tax Act, 1974, for all the five years assessing the chargeable interest as returned, without any addition or deduction.
4.3 Thereafter, the Assessing Officer levied penalty under section 13 of the Interest Tax Act,1974, after obtaining approval of Additional CIT(A) for all the five assessment years under appeal.
4.4 Being aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A), after considering the facts and circumstances of the case, came to the conclusion that details relating to interest income were already available in the record of the Assessing Officer as per the income tax assessment records of the assessee and assessee had explained that it was not liable to Interest Tax Act and there was no mala fide intention of the assessee in giving such explanation. The CIT(A) therefore deleted the penalty levied under section 13 of the Interest Tax Act,1974. The CIT(A) also observed that the assessee filed the return accepting interest income from the financial institutions and returns having been accepted as it is, there was no question of alleged concealment against the assessee.
4.5 Reliance was also placed on the decision of the Hon’ble Supreme Court in case of Sir Shadi Lal Sugar & General Mills Ltd. v. CIT  168 ITR 705 (SC) and Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC).
4.6 The CIT(A) deleted the penalty by observing as under:
“5. I have carefully considered the order u/s. 13 and the above submissions. On perusal of the facts stated by the assessee it is noticed that in the course of Income-tax assessment proceedings for Assessment Year 96-97, the assessee was asked as to whether Interest Tax return was filed by it and if not, why? The appellant had in response to the said question submitted detailed letter explaining that no return was filed under the Interest Tax Act and that Interest Tax Act was not applicable in its case. The Assessing Officer thereafter did not take any action under the Interest Tax Act against the appellant. Thus, the assessee bonafidely believed that it was not liable to Interest Tax Act and this explanation was accepted by the Assessing Officer by not taking any action against the appellant for four years. It was only in March 2002 that the Assessing Officer initiated proceedings by issue of notice U/s.10. Though the returns were filed disclosing therein sum chargeable to Interest Tax, the main issue of validity of reopening and non applicability of interest tax due to there being corporate deposits and not loans and advances remains still to be considered. The details of the interest income etc. were available in the income tax assessment record. These details are in terms of section 22 of the Interest Tax Act necessarily to be considered for the purpose of interest tax. Thus, the details were already available in the record of the Assessing Officer, and the assessee had explained that it was not liable to Interest Tax Act. Thus, there was no malafide intention of the assessee in giving such explanation. The assessee had filed Interest Tax return showing the entire interest income except the interest income from financing institutions and this return is accepted in the assessment u/s. 8(2) r.w.s. 10 of the Act. Considering these facts, I hold that there was no question of alleged concealment against the assessee and the penalty levied by the Assessing Officer requires to be deleted. The decision of the Supreme Court in the case of Sadilal Suger Mills Ltd reported at 168 ITR supports the appellant’s case that the income was duly offered under the Interest Tax Act. Apart from this, the ratio of the decision of the Supreme Court in the case of Hindustan Steels Ltd. reported at 83 ITR 26 also is applicable in the present case inasmuch as, as discussed above, the assessee had given bona fide explanation and thus had not acted deliberately in defiance of law. Besides, penalty proceedings are different from assessment proceedings. In the given facts and circumstances of the case, when all the details of interest income were before the Assessing Officer and returns filed have been accepted under Interest Tax Act, I find that there is no any concealment on the part of the appellant for which penalty can be imposed. Accordingly, the penalty levied by the Assessing Officer is directed to be cancelled, for all the assessment years under consideration.”
4.7 Being aggrieved, the Revenue preferred an appeal before the Tribunal. The Tribunal, after considering the decision of the Hon’ble Allahabad in case of CIT (Central) v. Sahara India Mutual Benefit Co. Ltd. 287 ITR 8 (Allahabad) dismissed the appeal by observing as under:
“15. After careful consideration of the rival submissions, facts and circumstances of the case, and the provisions of section 13 of the Interest Tax Act on one hand, and Explanation-3 to section u/s. 271(1)(c) of the Income Tax Act, on the other hand, we are of the opinion that so far as Income Tax Act is concerned, the legislature has made the failure to furnish the return as required u/s.139 of the Act before the period prescribed under sub-section (1) of section 153 of the Act as a case of concealment of income by specifically introducing Explanation-3 of section u/s.271(1)(c) of the Act; meaning thereby that had there been no Explanation-3, failure to furnish the return under the Income Tax Act also would not have been a case of concealment of income.
15.1 We are, further, of the opinion that the legislature having not made such specific provisions either by way of explanation or in the main provisions of section 13 of the Interest tax Act, failure to furnish the return of chargeable interest, in our opinion, cannot be considered a case of having concealed the chargeable interest and this is fully fortified by the decision of Hon’ble High Court of Allahabad in the case of Sahara India Mutual Benefit Co. Ltd. (supra), wherein under similar facts and circumstances of the case, the Hon’ble High Court dismissed the Revenue’s appeal by holding that “the contention that non-filing of the return voluntarily under section 7 of the Act would entail the provision for imposing penalty u/s.13 of the Interest Tax Act, did not flow from the provision of Interest Tax Act, penalty could not be imposed.”
15.1.(i) The facts of the case before the Hon’ble High Court were that the assessee, which was a financial company was required to file the return of Interest Tax Act upto 31/12/1999. Since the company had not furnished the return, a notice u/s. 10 of the Act was issued on 15/04/1996 requiring the assessee to furnish the return of chargeable interest within 30 days. Since the assessee failed to furnish the return within the prescribed time, a second notice was issued on 26/11/1996. The assessee-company filed the return on 31st October-1996 and had shown an amount of Rs.46,13,91,700/- as total chargeable interest, whereas the assessment was made u/s. 8(2) of the Act on February 04-1997 determining the chargeable interest at Rs.50,44,91,718/-.
15.1(ii) On appeal by the Assessee, the CIT(Appeals) reduced the assessed interest equal to the returned chargeable interest shown by the assessee.
15.1 (iii) Thereafter, the Assessing Officer, issued notice u/s.13 of the Interest Tax Act, because according to him, the return having not been filed by the due date given u/s.7 of the Act it would attract the penal provisions in the same manner as in the case of Income Tax Act for non-filing of the return of income and the chargeable interest could be taken as escaped interest. It was on this basis that the Assessing Officer levied penalty.
15.1. (iv) On appeal, the CIT(Appeals) cancelled the penalty, after considering the provisions of section 13 of the Interest Tax Act u/s.271(1)(c) of the IT Act. The CIT(Appeals) recorded his findings that nonfiling of the return voluntarily and filing the same by the Assessee only after a notice was issued u/s.10 of the Act cannot be taken to be concealment of chargeable interest and that there was no basis for imposing penalty on the appellant. On appeal by the Revenue, the ITAT confirmed the aforesaid findings of the CIT(Appeals).
15.2. On appeal by the Revenue, the Hon’ble High Court upheld the order of the Tribunal by observing as under:-

“6. We have gone through the record and find that the view taken by the Commissioner of Income-tax (Appeals) as well as by the Income-tax Appellate Tribunal does not call for any interference nor any substantial question of law is involved. The argument of learned counsel for the appellant, Sri Pradeep Agarwal that non-filing of the return voluntarily under section 7 of the Act would entail the provision for imposing penalty under section 13 of the Interest tax Act, cannot be supported nor does it flow from the provision of the Interest-tax Act. There is no gainsaying that the view taken by the two appellate authorities that the provisions of section 271(1)(c) of the Income-tax Act or the Explanation attached to section 148 of the Income-tax Act which is a separate and independent Act could not have been invoked for the purpose of levying penalty under the Interest-tax Act, does not suffer from any illegality.

7. Equally we do not find any force in the aforesaid argument of learned counsel for the appellant that the tax would be charged on the difference of the chargeable amount as against the amount so disclosed in the return and as determined by the assessing authority. The argument appears to be based on some misconception as the record itself shows and as submitted by the learned counsel for the respondents that the return furnished by the assessee did show the amount of Rs.46 crores odd and in assessment it was enhanced but finally the assessment was made of the same amount which has been furnished by the assessee on effect being given to the order passed in appeal. That being so, this cannot be a ground for entertaining the appeal.

8. The appeal has no force and is hereby dismissed.”

16. Coming to the present case, it is an admitted fact that though the assessee furnished the returns for all the five assessment years after issuance of notices u/s.10 of the Act and had returned taxable chargeable interest, but the assessments for all the assessments have been framed on the returned chargeable interest itself and, therefore, there is no question of considering the same as concealment or furnishing of wrong particulars on the basis of main provisions of section 13 of the Act.
17. So far as question of concealment on the basis of deeming provisions, as are enumerated in Explanation-3 to Section u/s.271(1)(c) of the Income Tax Act are concerned, we are of the opinion that the issue before us is squarely covered in favour of the Assessee and against Revenue by the decision of Hon’ble High Court of Allahabad in the case of Sahara India Mutual Benefit Co.Ltd. Therefore, respectfully following the aforesaid decision of Hon’ble Allahabad High Court, we do not find any merit in the appeals of the Revenue.”
5. Learned Senior Standing Counsel Ms. Maithili Mehta for the appellant submitted that the respondent-assessee did not file return under the Interest Tax Act, 1974 resulting into concealment of interest of income and therefore, the Assessing Officer was justified in levy of penalty under section 13 of the Interest Tax Act, 1974.
6. On the other hand, learned advocate Mr.S.N.Divetia relied upon the orders passed by the CIT(A) as well as the Tribunal. It was submitted that the respondent-Assessee has acted under the bona fide belief that it was not liable to interest tax and filed returns in response to the notice issued under section 8(2) of the Interest Tax Act,1974. It was also submitted by learned advocate Mr.Divetiya that the returns filed by the assessee were accepted and no addition is made by the Assessing Officer. In support of his submissions, reliance was placed on the decision of this Court [Coram: Hon’ble Mr. Justice Akil Kureshi and Hon’ble Ms. Justice Sonia Gokani] in case of CIT v. Abhishek Finlease Ltd. [Tax Appeal Nos. 969 to 973 of 2009, dated 1-3-2011].
7. Reliance was also placed on the decision of the High Court of Himachal Pradesh in case of CIT v. H.P. State Cooperative Bank [IT Appeal No. 33 of 2006, dated 28.10.2009]. Referring the above decision, it was submitted that the Tribunal has not committed any error in upholding the order passed by the CIT (A) and levied penalty under section 13 of the Interest Tax Act, 1974.
8. Having heard learned advocates for the parties and considering the facts of the case as well the reasons assigned by the CIT(A) and the Tribunal for deleting the penalty levied under section 13 of the Interest Tax Act,1974, we are of the opinion that the Tribunal has not committed any error in upholding the order passed by the CIT(A) in deleting the penalty under section 13 of the Interest Tax Act,1974.
9. Section 13 of the Interest Tax Act,1974 reads as under:
“13. Penalty for concealment of chargeable interest. —If the Assessing Officer or the Commissioner (Appeals) in the course of any proceeding under this Act, is satisfied that any person has concealed the particulars of chargeable interest or has furnished inaccurate particulars of such interest, he may direct that such person shall pay by way of penalty, in addition to any interest-tax payable by him, a sum which shall not be less than, but shall not exceed three times, the amount of interest-tax sought to be evaded by reason of the concealment of particulars of his chargeable interest or the furnishing of inaccurate particulars of such chargeable interest.]”
10. This Court, in case of Abhishek Finlease Ltd. (supra), after considering the similar facts, has held as under:
“4. In so far as the reasoning that the Assessing Officer, while assessing returns of the assessee under the Income Tax Act, also did not bring to the notice of the assessee, requirement of filing return under the Interest Tax Act and, that therefore, the penalty should not be levied, may not be entirely palatable. We are, however, of the view that in the present case, even otherwise, order of deletion of penalty can be supported and justified. Section 13 of the Interest Tax Act (repealed since the year 2001) permits Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under the Act to levy penalty ranging from principal sum of tax evaded to three times the said figure if he is satisfied that any person has concealed particulars of chargeable interest or has furnished inaccurate particulars of such interest. In the present case, the assessee had represented that he was not aware about the requirement of filing return under the Interest Tax Act or the liability to pay interest tax. Since the Tribunal found that there was no wilful concealment of the particulars by the assessee and in fact CIT (Appeals) also had observed that the Company was under bona fide impression that no such returns were required to be filed, quite independently, on the above logic of the Assessing Officer not bringing the issue to the notice of the assessee, the order of the Tribunal can be sustained.”
11. The Hon’ble High Court of Himachal Pradesh also, in similar facts, while considering the effect of section 271(1)(c) of the Income Tax Act,1961, while considering levy of penalty under section 13 of the Interest Tax Act,1974, has held that the provision of Explanation-3 to section 271(1)(c) of the Income Tax Act,1961, cannot be applied while considering the levy of penalty under section 13 of the Interest Tax Act,1974, as under:
“There can be no dispute with the finding of the Tribunal that Section 271(1)(c) of the Income Tax Act could not be taken into consideration while imposing the penalty. Section 21 of the interest Act makes certain provisions applicable of the Income Tax Act to proceedings under the Interest Tax Act. Section 271 is not included therein. Therefore, there can be no quarrel with the proposition that Section 271(1)(c) was wrongly invoked by the Assessing Officer and the Commissioner of Income Tax. However, as is apparent from the portion of the order of the Assessing Officer quoted hereinabove, Section 271(1)(c) was only one of the four grounds which were taken into consideration by the Assessing Officer. The Assessing Officer had also considered three other grounds which have not been considered by the Tribunal at all. Since one of the factors which was taken into consideration by the Assessing Officer could not be taken into consideration, his order may have to be set-aside but the matter should have been remanded to him to determine the question as to whether the penalty is leviable in terms of Section 13 of the Interest Tax Act or not. The Tribunal could not have set-aside the entire order on this ground alone.
Section 13 of the Act provides that penalty which shall not be less than the amount of tax sought to be evaded but shall not exceed three times the amount of tax sought to be evaded, can be levied in case the assessee has concealed particulars of chargeable interest or has furnished inaccurate particulars of such interest. The provision of Section 271(1)(c) which lays down a presumption against the assessee in case of non filing of return within a particular time is not applicable to the Interest Tax proceedings. However, de hors of Section 271(1) (c), Section 13 does provide the grounds and procedure for levy of penalty. In case the Assessing Officer is convinced that the assessee has concealed particulars of chargeable interest or has furnished inaccurate particulars penalty can be levied.
We accordingly decide the question in favour of the revenue and remand the case to the Assessing Officer who shall determine the question as to whether the assessee is liable to pay penalty and if so to what extent strictly in consonance with the provisions of Section 13 of the Interest Tax Act and totally uninfluenced by the provisions of Section 271(1)(c) of the Income Tax Act.”
12. In view of the above position as well as the facts of the case, both the CIT(A) and the Tribunal have arrived at concurrent finding of fact that there was no mala fide intention on the part of the respondent-assessee in not filing the return. Furthermore, since no addition was made by the Assessing Officer accepting the return of interest tax filed by the assessee, the question of levy of penalty for concealment or furnishing wrong particulars under section 13 of the Interest Tax Act, 1974, does not arise.
13. In view of the decisions relied upon by the Tribunal in case of Sahara India Mutual Benefit Co. Ltd. (supra) as well as the decision of the Hon’ble High Court of Himachal Pradesh in case of H.P. State Cooperative Bank (supra), we are of the same opinion that the provision of Explanation-3 to section 271(1)(c) of the Income Tax Act, 1961, would not be applicable while considering levy of penalty under section 13 of the Interest Tax Act,1974.
14. In view of the above, we are of the opinion that the Appellate Tribunal is right in law and in facts in upholding the order passed by the CIT(A) deleting penalty levied under section 13 of the Interest Tax Act,1974. The question is, therefore, answered in favour of the assessee and against the Revenue.
15. Tax Appeals are accordingly dismissed. No order as to costs.