2013 (9) TMI 1080 - AT - Income Tax

Penalty u/s. 271(1)(c) - Held that - We are of the opinion that penalty u/s 271(1)(c) is not warranted. With reference to the club membership fee, Assessee paid an amount of ₹ 6 lakhs as membership fee. On the basis of decision of Jurisdictional High Court in the case of Otis Elevator Co. (India) Ltd. (1991 (4) TMI 53 - BOMBAY High Court ) assessee claimed the deduction at 1/4th of the amount at ₹ 1,50,000/- over a period of 4 years. In the assessment year 2005-06 it was disallowed. By that time assessee already has filed return for assessment year 2007-08. Therefore, there is a bona fide belief that the claim is allowable u/s 37(1). Further, assessee is in the business of import of steel. As part of that it seems, he spent an amount of ₹ 92,092/- as sales promotion and transport expenditure on Mr. John and claimed as business expenditure. AO treated it as personal expenditure. Just became a claim was made and AO made disallowance, the same may not lead to levy of penalty u/s. 271(1)(c). There is bona fide belief in making the claims - Decided in favour of assessee

Summary

Issues:
Assessee appeal against penalty u/s. 271(1)(c) for disallowed club membership fee and foreign travel expenses.

Analysis:
1. The AO disallowed club membership fee and foreign travel expenses as personal expenses without business connection. Assessee argued expenses had business connection.
2. Assessee contended disallowance doesn't imply concealment or inaccurate particulars, citing Otis Elevator Co. case.
3. Assessee maintained expenses were disclosed in accounts, no concealment or inaccuracies.
4. Assessee believed club fee was deductible under section 37(1), referencing jurisdictional High Court decisions.
5. Assessee cited Supreme Court's ruling in Reliance Petroproducts case, disallowance doesn't imply concealment.
6. Pune Tribunal's decision highlighted, claim rejection doesn't equate to inaccurate particulars.
7. Mumbai Tribunal's VIP Industries Ltd. case emphasized genuine claim rejection doesn't warrant penalty.
8. High Court rulings in SSP Ltd. and Deksha Holidays Ltd. cases supported Assessee's stance.
9. Mumbai Tribunal's Strides Arcolab Ltd. case reiterated claim rejection doesn't indicate inaccurate particulars.
10. Assessment and penalty proceedings are distinct; mere disallowance doesn't mandate penalty.
11. CIT(A) upheld penalty citing Assessee's acceptance of club fee disallowance and personal nature of travel expenses.
12. ITAT Mumbai canceled penalty, citing Assessee's bona fide belief in claims, referencing relevant legal precedents.
13. Conclusion: Penalty u/s. 271(1)(c) not warranted, Assessee's appeal allowed.