2014 (1) TMI 644 - AT - Income Tax

Penalty u/s 271(1)(c) - The computation was made u/s. 115JB and tax was payable - Held that - Following M/s. Ruchi Strips & Alloys Ltd vs. DCIT 2011 (1) TMI 171 - ITAT MUMBAI - No penalty could have been imposed on the assessee because there was no tax sought to be evaded because the addition in respect of which penalty was imposed was made while computing total income under the normal provisions of the Act and ultimately the total income of the Assessee was determined on the basis of book profits u/s.115JB The said concealment has no effect on evasion of tax - Decided in favour of assessee.

Summary

Issues:
Assessment of penalty under section 271(1)(c) of the Income Tax Act for claiming expenses disallowed by the Assessing Officer.

Detailed Analysis:
The appellant filed an appeal against the order confirming the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2003-04. The Assessing Officer (AO) disallowed expenses claimed by the appellant related to a computer course pursued by Mr. Naval Kumar, son of the majority shareholder of the appellant company, and also disallowed a salary payment to Mr. Naval Kumar. The AO initiated penalty proceedings stating that the appellant inflated expenses to reduce taxable income, constituting a case of furnishing inaccurate particulars. The first appellate authority upheld the AO's decision, citing precedents where false claims amounted to concealing income.

During the hearing, the appellant's representative argued that similar expenses in other assessment years were allowed by the AO and penalty proceedings were dropped in one instance. The representative contended that if the income was finally computed under section 115JB of the Act, the penalty could not be imposed as the disallowance had no impact on tax evasion. The Departmental Representative supported the lower authorities' orders, asserting that the expenses were personal in nature and not related to the business.

The Tribunal considered the arguments and cited the decision of the Hon'ble Delhi High Court in a similar case, emphasizing that concealment should lead to tax evasion for penalty imposition. As the income was ultimately assessed under section 115JB of the Act, where the disallowance did not affect tax evasion, the concealment had no role in the tax assessment. Following the Delhi High Court's decision, the Tribunal canceled the penalty, as the concealment did not impact tax evasion due to the computation based on book profits under section 115JB. The penalty under section 271(1)(c) was consequently revoked, aligning with the legal principles established in the cited cases.

Therefore, the appeal filed by the appellant was allowed, and the penalty under section 271(1)(c) was canceled based on the specific circumstances and legal precedents discussed during the proceedings.