2010 (2) TMI 881 - AT - Income Tax

Penally under s. 271(1)(c) of the Act - assessee had claimed foreign travel expenses of wife of the director who had accompanied her husband on foreign travel - expenditure was disallowed being not relatable to the business of the assessee company - Merely because an expenditure has been disallowed in the hands of the assessee does not automatically make the assessee exigible to levy of penalty under s. 271(1)(c) of the Act - Held that - no merit in the levy of penalty on disallowance of expenses holding the same to be non-business expenses appeal of the Revenue is dismissed.

Summary

Issues:
- Appeal against order of CIT(A)-II, Ludhiana regarding penalty under s. 271(1)(c) of IT Act for asst. yr. 2004-05.
- Deletion of penalty on disallowance of foreign tour expenses and recomputation of deduction under s. 80HHC.

Analysis:
1. The appeal before the ITAT, Chandigarh was filed by the Revenue against the order of CIT(A)-II, Ludhiana, pertaining to the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2004-05.

2. The primary issue raised in the appeal was the deletion of the penalty levied under section 271(1)(c) of the IT Act. The penalty was imposed by the Assessing Officer (AO) based on disallowance of foreign tour expenses of the director's wife and recomputation of deduction under section 80HHC of the Act.

3. The AO disallowed the expenditure on foreign travel of the director's wife while computing the income under section 143(3) of the Act. The penalty was imposed despite the minimum penalty being lower than the amount levied. However, the CIT(A) deleted the penalty on both grounds - disallowance of foreign tour expenses and recomputation of deduction under section 80HHC.

4. The ITAT heard arguments from both sides represented by Mr. S.P. Khutan for the Revenue and Shri Sudhir Sehgal for the assessee.

5. The ITAT examined the case and noted that the assessee had debited foreign travel expenses of the director's wife in the accounts. The assessee contended that all particulars were disclosed, and there was no concealment or inaccurate reporting of income, prerequisites for penalty under section 271(1)(c).

6. The ITAT clarified that penalty under section 271(1)(c) is attracted when there is income concealment or inaccurate income particulars. In this case, the disallowed expenses were not related to the business of the assessee, but the mere disallowance does not automatically warrant a penalty. The ITAT agreed with the CIT(A) that there was no basis for penalty as the expenses were non-business related, and no evidence of concealment was found.

7. The ITAT upheld the CIT(A)'s decision to delete the penalty on foreign travel expenses, stating that the disallowance did not justify penalty under section 271(1)(c). Consequently, the Revenue's appeal was dismissed, affirming the deletion of the penalty.

8. In conclusion, the ITAT, Chandigarh dismissed the Revenue's appeal, thereby upholding the decision to delete the penalty imposed under section 271(1)(c) of the IT Act for the assessment year 2004-05.