2015 (10) TMI 2674 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of foreign traveling expenses - Held that - Penalty u/s 271(1)(c) of the Act can be imposed only when the assessee has concealed income or furnished inaccurate particulars of income. Where a deduction is claimed after making a proper disclosure the mere fact that the disallowance has been made for a part of such deduction it cannot be construed as a case covered u/s 271(1)(c) of the Act. CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT) has held that no penalty can be imposed where a proper disclosure is made but the disallowance has been made by the Assessing Officer. In considered opinion the learned CIT(A) was justified in not upholding penalty on this amount of disallowance. Disallowance u/s 14A r.w.r 8D - Held that - There cannot be any disallowance u/s 14A if there is no exempt income. As confronted with a situation in which the assessee has not earned any exempt income but the disallowance has been made to the extent of 13.64 lakh by applying Rule 8D. Despite there being no challenge to or sustenance of the disallowance u/s 14A it is of considered opinion that under no circumstance such ill founded disallowance not having any authority of law to stand on can be considered for the purposes of imposition of penalty u/s 271(1)(c) of the Act. Therefore approve the view taken by the learned CIT(A) on this score. Disallowance of credit card expenses - Held that - This disallowance was made by the Assessing Officer on ad-hoc basis which fact is borne out from the assessment order itself. There is hardly any need to highlight that no penalty can be imposed where the disallowance of expenses has been made on an ad-hoc basis. Therefore hold that the learned CIT(A) was justified in deleting the penalty on this account as well. Decided against revenue.

Summary

Issues:
1. Deletion of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 in relation to assessment year 2008-09.

Detailed Analysis:

Issue 1: Deletion of Penalty
The appeal by the Revenue challenged the deletion of a penalty of &8377; 5,32,830 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed on disallowance of foreign traveling expenses, disallowance under section 14A, and disallowance of credit card expenses. The learned CIT(A) deleted the penalty, leading to the Revenue's appeal.

Analysis:
The first disallowance was related to foreign traveling expenses, which the Assessing Officer partially disallowed. The learned CIT(A) further reduced the disallowance, confirming only a part of it. The Tribunal noted that the assessee consistently claimed that these expenses were incurred for business purposes, and the disallowance did not amount to concealment of income or furnishing inaccurate particulars. Citing the Supreme Court's decision in CIT Vs. Reliance Petroproducts Pvt. Ltd., it was held that a proper disclosure negates the imposition of penalty under section 271(1)(c) when a disallowance is made. Therefore, the learned CIT(A) was justified in deleting the penalty on this disallowance.

The second component of the penalty was related to disallowance under section 14A, despite the assessee not earning any exempt income during the relevant year. The Tribunal referred to relevant High Court judgments stating that in the absence of exempt income, no disallowance under section 14A can be made. Despite the disallowance under Rule 8D, the Tribunal held that without any exempt income, such disallowance lacked legal basis and could not be a ground for imposing a penalty under section 271(1)(c). Thus, the learned CIT(A)'s decision to delete the penalty on this disallowance was upheld.

The last component of the penalty was the disallowance of &8377; 1 lakh out of credit card expenses on an ad-hoc basis. The Tribunal emphasized that penalties cannot be imposed when expenses are disallowed on an ad-hoc basis. Therefore, the learned CIT(A) was justified in deleting the penalty on this account as well.

In conclusion, the Tribunal dismissed the appeal by the Revenue, upholding the decisions of the learned CIT(A) to delete the penalties imposed by the Assessing Officer. The judgment was pronounced on 21st October 2015.