2014 (6) TMI 394 - AT - Income Tax

Levy of penalty u/s 271(1)(c) of the Act Disallowance of expenses on foreign travel Failure to furnish the primary evidences Held that - Following CIT., Delhi Versus Atul Mohan Bindal 2009 (8) TMI 44 - SUPREME COURT - the scope of the Explanation 1(B), and with specific reference to the word substantiate occurring therein, confirming, as a result, the penalty on an addition of Rs.7 lacs where the assessee was found unable to substantiate its explanation the order confirms both the position of the law in the matter as well as the fact that the matter is principally factual is to be decided on an appreciation of the facts and circumstances of the case - the assessee have not furnished any explanation nor even the primary details in support of its claim, have therefore no hesitation in confirming the penalty, levied @ 100% of the tax sought to be evaded Decided against Assessee.

Issues:
1. Appeal against the levy of penalty u/s.271(1)(c) of the Income Tax Act, 1961 for A.Y. 2007-08.
2. Disallowance of expenditure on foreign travel for failure to furnish primary evidences.
3. Burden of proof on the assessee in penalty proceedings.
4. Explanation required for incurring expenditure for business purpose.
5. Legal precedents supporting penalty imposition.
6. Tribunal's decision in Goyal Industries Ltd. case and its relevance to the current case.
7. Confirmation of penalty @ 100% of tax sought to be evaded.

Analysis:
1. The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2007-08. The Commissioner of Income Tax (Appeals) confirmed the penalty, citing the disallowance of expenditure on foreign travel amounting to Rs.95,023 due to the assessee's failure to provide primary evidences justifying the business purpose of the expenditure.

2. The burden of proof in penalty proceedings lies with the assessee, who must substantiate their explanation for incurring the expenditure. The appellant's case lacked a detailed explanation regarding the purpose of the visit, nature of work conducted, and business transactions during the travel. The absence of substantial evidence led to the initial disallowance of the expenditure and subsequent confirmation of the penalty.

3. Legal precedents, including decisions by the apex court, emphasize that the assessee must provide a plausible explanation and substantiate it to avoid penalty. The court referred to various cases such as CIT v. Atul Mohan Bindal and Union of India v. Dharmendra Textile Processors to support the principle that the burden of proof rests on the assessee.

4. The tribunal's decision in the Goyal Industries Ltd. case highlighted the importance of substantiating explanations, particularly in relation to the term 'substantiate' in Explanation 1(B). Despite the appellant's reliance on this case, the tribunal found that the assessee failed to furnish a satisfactory explanation or primary details supporting the claim, leading to the confirmation of the penalty at 100% of the tax sought to be evaded.

5. Ultimately, the tribunal dismissed the assessee's appeal, upholding the penalty imposed by the Commissioner of Income Tax (Appeals). The decision was based on the assessee's inability to provide a convincing explanation for the foreign travel expenditure and the lack of supporting evidence to justify the business purpose of the trip. The penalty was confirmed in line with legal precedents and the burden of proof on the assessee in penalty proceedings.

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