2013 (10) TMI 597 - AT - Income Tax

Penalty u/s 271(1)(c) - Disallowance of expenses on foreign travel - Held that - not only the levy of penalty on the issue of disallowance of the above expenditure is erroneous but also the findings of the learned Commissioner (Appeals) are also untenable because, no addition has been made on account of these two additions in the assessment order, which is the basis for initiation and levy of penalty under section 271(1)(c). The additions were made by the Assessing Officer after working out the difference in the reduction of proportionate cost of land as highlighted above and not on the disallowance relating to foreign travel and donation because the assessee itself has disallowed the said expenditure from the cost of the construction and the Assessing Officer has also agreed to the same. On these facts, the levy of penalty under section 271(1)(c) by the Assessing Officer as well as confirmation thereof by the learned Commissioner (Appeals) on such disallowance of foreign travel and donation, has no legs to stand and, consequently, penalty is hereby deleted - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty under section 271(1)(c) for disallowance of expenses on foreign travel and donation.

Analysis:
1. The appellant, engaged in construction business, challenged the penalty under section 271(1)(c) for disallowance of expenses on foreign travel and donation. The appellant followed the completed contract method for a project started before the revision of Accounting Standard AS/7. The Assessing Officer required details of work-in-progress, leading to a discrepancy in land cost calculation due to FSI utilization.

2. The Assessing Officer revised the land cost, affecting the profit computation under the percentage completion method. The income was recalculated, resulting in a profit instead of the initial loss shown by the appellant. However, no addition was made for foreign travel and donation in the assessment order, as both the appellant and Assessing Officer agreed to disallow these expenses from construction cost.

3. The Assessing Officer initiated penalty proceedings under section 271(1)(c) based on foreign travel expenses, donation, and balance profit additions. The penalty was upheld for foreign travel and donation disallowance by the Commissioner (Appeals), despite no addition made in the assessment order. The Tribunal noted the erroneous penalty levy and findings, deleting the penalty as the additions were not the basis for penalty initiation or levy under section 271(1)(c).

4. The Tribunal found the penalty levy on disallowed expenses erroneous, as no addition was made in the assessment order for foreign travel and donation. The confirmation of penalty by the Commissioner (Appeals) was deemed untenable, leading to the deletion of the penalty. The grounds raised by the appellant were allowed, resulting in the appeal being treated as allowed.

5. In conclusion, the Tribunal deleted the penalty imposed under section 271(1)(c) for disallowance of foreign travel expenses and donation, as no additions were made for these expenses in the assessment order, rendering the penalty baseless. The appeal was allowed, and the penalty was removed.

Order pronounced in the open Court on 24/05/2013.