2012 (11) TMI 411 - AT - Income Tax

Penalty u/s.271(1)(c) r.w.s. 158BFA(2) - disallowance of educational and traveling expenses of the son - CIT(A) deleted the levy - Held that - Perusal of the scrutiny assessment u/s 143(3) for the AY 2001-2002 and 2002-2003 revealed that the similar expenses on educational and traveling expenses of the son has been disallowed by the AO holding the same as non-business expenditure but no penalty u/s 271(1)(c) in these two assessment years were initiated. The assessee has filed explanation and there is no material brought on record to suggest that the explanation of the assessee regarding the claim of educational expenses was not bona fide. It is a case of difference of opinion between the assessee and the Revenue regarding allowability of certain claim of expenses claimed by the assessee, as an allowable deduction out of its taxable income. In these facts of the case, the penalty levied was rightly deleted by the CIT(A) by observing that the expenses were claimed by the assessee under a bona fide belief that such expenses were allowable expenses to the assessee - in favour of assessee.

Summary

Issues:
1. Reduction of penalty under section 271(1)(c) and cancellation of penalty on educational expenses.
2. Applicability of Explanation 1 to Section 271(1)(c) of the Act.
3. Claim of deduction of expenses and its bona fide nature.
4. Disallowance of educational expenses and subsequent penalty initiation.
5. Difference of opinion between the assessee and the Revenue on expenses.

Analysis:

The judgment by the Appellate Tribunal ITAT, Ahmedabad, involved an appeal by the Revenue and a cross-appeal by the assessee against the order of the CIT(A)-XVI, Ahmedabad. The Revenue's appeal primarily focused on the reduction of penalty under section 271(1)(c) and the cancellation of the penalty related to educational expenses. The Revenue contended that the claim of educational expenses was not a business expenditure and that Explanation 1 to Section 271(1)(c) was applicable due to the lack of bona fide conduct by the assessee. However, the counsel for the assessee argued that all material facts were disclosed during the filing of the return, and similar expenses in subsequent years were disallowed without penalty initiation, indicating a consistent approach by the department.

Upon reviewing the submissions and orders, the Tribunal found that the assessee had disclosed all relevant facts regarding the educational expenses in the return of income. It noted that the department did not challenge the penalty deletion by the CIT(A) on other issues, focusing solely on the educational and traveling expenses of the son. The Tribunal observed that the department had disallowed similar expenses in subsequent years without initiating penalties, indicating a lack of consistency in penalty imposition. The Tribunal emphasized that the explanation provided by the assessee was bona fide, leading to a difference of opinion between the assessee and the Revenue on the allowability of certain expenses.

Ultimately, the Tribunal upheld the CIT(A)'s decision to delete the penalty under Section 271(1)(c), stating that the expenses were claimed by the assessee in good faith as allowable deductions. The Tribunal dismissed the Revenue's appeal, highlighting the genuine belief of the assessee regarding the deductibility of the expenses. In a separate matter, the assessee's cross-appeal raised concerns about the levy of minimum penalty under section 271(1)(c) on a specific amount, which was not pressed by the counsel and consequently dismissed.

In conclusion, the Tribunal dismissed both the Revenue's appeal and the assessee's cross-appeal, emphasizing the importance of bona fide beliefs in claiming expenses and highlighting the need for consistency in penalty imposition by tax authorities.