2012 (10) TMI 845 - AT - Income Tax

Penalty u/s. 271(1)(c) - disallowance on foreign travel expenses - Held that - Assessee s submissions in this regard is note worthy that both the wives, who were also Directors of the company were receiving considerable salary which was accepted year after year. Hence, the visits cannot be said to be for non-business purposes. It has further been noted that disallowance in this regard in the preceding year was only 20% and on that addition penalty was not imposed, even the penalty notice has been issued by the AO. In this background it is to concluded that section 271(1)(c) postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. In this case disallowance has been made only on estimate basis. In the preceding year this disallowance was only 20% and no penalty was imposed. Thus on the facts and circumstances of this case the conduct of the assessee cannot be said to be contumacious so as to warrant levy of penalty u/s. 271(1)(c) - mensrea was a essential requirement of penalty u/s 271(1)(c) as decided in Dilip N. Shroff Versus Joint Commissioner of Income-tax And Another 2007 (5) TMI 198 - SUPREME COURT - in favour of assessee.

Summary

Issues involved:
1. Justification of penalty under section 271(1)(c) of the Income Tax Act regarding disallowance on foreign travel expenses.
2. Excessive penalty imposition.
3. Applicability of penalty under section 271(1)(c) based on inaccurate particulars and concealment of income.

Detailed analysis:
1. The judgment dealt with the issue of the justification of penalty under section 271(1)(c) of the Income Tax Act concerning the disallowance on foreign travel expenses. The Assessing Officer disallowed 50% of the foreign travel expenses claimed by the Assessee, amounting to Rs. 7,31,363. The Assessee contended that the expenses were for business purposes, but the authorities were not convinced. The penalty was imposed based on an estimate, and the disallowance was confirmed by the Commissioner of Income Tax (A) and ITAT. However, the Appellate Tribunal found that the conduct of the Assessee was not contumacious enough to warrant the penalty under section 271(1)(c). The Tribunal considered the facts and circumstances, noting that in the preceding year, a similar disallowance of 20% did not attract a penalty. The Tribunal referenced the Hindustan Steel case to emphasize that penalties should not be imposed for technical breaches or bonafide beliefs, leading to the deletion of the penalty in this case.

2. The issue of excessive penalty imposition was also raised in the appeal. The Assessee argued that the penalty sustained by the Commissioner of Income Tax (A) was very high concerning the disallowance on foreign travel expenses. The Appellate Tribunal considered the quantum of the penalty in light of the expenses and the nature of the disallowance. Ultimately, the Tribunal found that the penalty was disproportionate to the circumstances and set aside the penalty imposed, thereby addressing the concern of excessive penalty imposition.

3. The judgment further delved into the applicability of penalty under section 271(1)(c) based on inaccurate particulars and concealment of income. The Tribunal referred to the Hon'ble Apex Court decision in the case of CIT vs. Reliance Petro Products Ltd. to highlight the importance of judicial discretion in imposing penalties for statutory obligations. The Tribunal emphasized that penalties should not be levied for every disagreement between the Assessee and the Assessing Officer, as it goes against the legislative intent. Citing relevant precedents, the Tribunal concluded that the penalty under section 271(1)(c) was not justified in this case and proceeded to delete the levy of the penalty, thereby providing a comprehensive analysis of the issue based on legal principles and case law references.