2013 (4) TMI 546 - AT - Income Tax

Penalty u/s 271(1) - As per AO the assessee has debited various expenses to the P&L account for the year under consideration which were actually not related to the project - objection raised by the assessee about the lack of satisfaction recorded by the A.O. for initiating penalty - Held that - As rightly submitted by the assessee, the genuineness of the said expenses, however, was not doubted or disputed by the A.O. and there is nothing in the orders of the authorities below to doubt the bonafide of the assessee in claiming the said expenses as per the practice consistently followed. Moreover, all the material particulars relating to the said claim made on account of the expenses were furnished by the assessee and there is no allegation made by the A.O. that any such particulars furnished by the assessee were found to be incorrect or inaccurate. As decided in Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT) that a mere making of the claim, which is not sustainable in law, by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee and merely because thus the assessee s claim for deduction has not been accepted, penalty u/s 271(1)(c) cannot be attracted especially when there is no allegation that any particulars filed by the assessee in relation to his claim were found to be incorrect or inaccurate. It is also pertinent to note that the impugned disallowance of expenses was made by the A.O. on the ground that the same were not allowable in the year under consideration but were allowable in the subsequent year on commencement of the corresponding projects which clearly shows that the dispute was only relating to the year in which the said expenses are allowable and not about the very deductibility of the said expenses as the genuineness - penalty deleted - in favour of assessee.

Summary

Issues:
- Disallowance of expenses related to projects not commenced in the year under consideration
- Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961

Analysis:

Issue 1: Disallowance of Expenses Related to Projects Not Commenced
The assessee, a company engaged in land development and building construction, filed its income tax return declaring total income after deductions. During assessment, the Assessing Officer (A.O.) found expenses debited to the profit and loss account not related to the taxable project. The assessee admitted the error and revised the return, offering additional income for taxation. The A.O. further disallowed expenses related to projects not commenced, resulting in a total disallowance. The Commissioner of Income Tax (Appeals) upheld part of the disallowance, leading to penalty proceedings under section 271(1)(c) for inaccurate income particulars.

Issue 2: Imposition of Penalty under Section 271(1)(c)
The A.O. imposed a penalty under section 271(1)(c) due to the disallowance of expenses related to uncommenced projects. The assessee contended that all relevant details were disclosed in the financial statements, and the expenses were claimed in good faith. However, the Commissioner upheld the penalty citing inaccurate income particulars. The Tribunal considered the lack of specific satisfaction recorded by the A.O. for the penalty. It noted that the disallowance was accepted by the assessee in good faith, with no doubts on the genuineness of the expenses. Relying on the Supreme Court precedent, the Tribunal held that the penalty was not justified as the expenses were disclosed genuinely, and no incorrect particulars were provided.

In conclusion, the Tribunal allowed the assessee's appeal, canceling the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.