2013 (10) TMI 166 - HC - Income Tax

Penalty u/s 271(1)(c) - Held that - assessee has not furnished any evidence pertaining to the ticket / vouchers to travel in foreign country. Similarly, no evidence was furnished that what services were rendered by the recipient of the commission. How much business was obtained by incurring such expenses. The interest bearing borrowed funds were given to the wife without any interest for personal purpose - it appears that the assessee makes the claim of the said expenses in the profit and loss account with an intention to reduce the taxable income by concealment of facts. The concealment was detected only during the scrutiny. The assessee has given the false statement. On false estimate/statement, the penalty is justifiable as per the ratio laid down in Londu Lal R. P. vs. CIT 2006 (8) TMI 169 - ALLAHABAD High Court and Shyam Biri Works Pvt. Limited vs. CIT 2002 (12) TMI 75 - ALLAHABAD High Court - Decided against assessee.

Summary

Issues:
Assessment of deductions in income tax return, validity of additions made by Assessing Officer, confirmation of additions by Appellate Authority and Tribunal, imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961, justification of penalty imposition, concealment of facts by the assessee, genuineness of expenses claimed by the assessee, nexus between expenses and business activity, justification of impugned order by Tribunal.

Analysis:
The judgment delivered by the Hon'ble Dr. Satish Chandra J. of the Allahabad High Court pertains to an appeal under Section 260-A of the Income Tax Act, 1961. The case involved the assessment year 2001-02 where the assessee, engaged in export of pharmaceuticals and share trading, faced scrutiny resulting in the Assessing Officer making additions to the income. The additions were partially deleted by the first appellate authority and the Tribunal, ultimately affirming an addition of Rs. 25,91,017. Subsequently, a penalty of Rs. 9,75,500 was imposed under section 271(1)(c) of the Act, which was upheld by the authorities and challenged in the present appeal.

During the proceedings, the counsel for the assessee argued that the additions were reflected in the quantum appeal, emphasizing the absence of mens rea and defending the genuineness of the expenses claimed. The counsel contended that the penalty proceedings should be viewed independently and requested cancellation of the penalty. On the other hand, the department's counsel argued that the case fell under section 271(1)(c) explanation 1(B) of the Act, highlighting discrepancies related to interest-free loans, foreign travel expenses, and commission payments.

After hearing both parties and examining the evidence, the Court found that the expenses claimed by the assessee were unsupported, leading to the conclusion that they were bogus. The Court noted the lack of evidence regarding foreign travel expenses and commission services, indicating a lack of business purpose. The Court emphasized that the concealment of facts was detected during scrutiny, justifying the imposition of penalty based on false statements and estimates.

In its decision, the Court referenced various legal precedents and upheld the impugned order passed by the Tribunal, stating that the penalty was justifiable given the concealment of facts and false statements by the assessee. The Court declined to interfere with the Tribunal's order, ruling in favor of the revenue and against the assessee, thereby dismissing the appeal.

Overall, the judgment underscores the importance of substantiating expenses claimed in income tax returns, the consequences of concealment of facts, and the judicial scrutiny applied in determining the validity of penalties under the Income Tax Act, 1961.