2015 (12) TMI 611 - AT - Income Tax

Penalty u/s u/s 271(1)(c) - whether mere disallowance of any expenditure can not be treated as a case of concealment? - Held that - The assessee had claimed the expenditure on interest incurred by the assessee to certain parties which was disallowed by the AO. We find that the claim of the assessee, in respect to loan from unsecured creditors, is not disputed and that disbursement of interest free loan have not been concealed by the assessee before the AO. Here we find that the claim made by the assessee is not a false claim. At best, it can be termed as a wrong claim, though the genuineness of the expenditure has not been suspected by the AO. So when the expenditure made by the assessee which was claimed as an allowable expenditure when disallowed by the AO cannot be termed as concealment or providing inaccurate particulars. Even if assessee firm engages assistance of tax consultants and then for the mistake of tax consultants, the assessee cannot be penalized. In the light of the above facts, we find that the instant case does not merit penalty to be levied against it. Therefore, we are inclined to delete the penalty levied against the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
Penalty under section 271(1)(c) of the Income Tax Act for disallowance of expenditure.

Detailed Analysis:

1. Background:
The appeal was filed by the assessee against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2008-09. The primary issue was the penalty of Rs. 1,43,376 levied under section 271(1)(c) of the Income Tax Act.

2. Quantum Assessment and Disallowance:
The assessee firm had income from the sale of medicines, and during the assessment, it was found that interest-bearing unsecured loans were given free of interest to certain parties. The Assessing Officer disallowed Rs. 4,64,000 as interest wrongly debited to the accounts, alleging diversion of interest-bearing business loans for non-business purposes.

3. Penalty Imposition:
The Assessing Officer imposed the penalty of Rs. 1,43,376 under section 271(1)(c), stating that the assessee diverted business loans for non-business purposes. The CIT(A) confirmed the penalty, emphasizing that the assessee was aware that interest expenditure was not eligible for deduction as per law.

4. Arguments and Defense:
The assessee contended that the disallowance was based on a bonafide claim and that the penalty should be deleted. The argument was that the disallowance was not a ground for the levy of penalty as it was a genuine claim made by the assessee.

5. Judgment and Decision:
After considering the arguments, the ITAT Delhi found that the disallowed expenditure was a genuine claim made by the assessee. The Tribunal noted that the genuineness of the expenditure was not in question, and the disallowance did not amount to concealment or providing inaccurate particulars. It was also observed that even if the assessee had tax consultants, any mistake on their part should not lead to penalization of the assessee.

6. Conclusion and Verdict:
Ultimately, the ITAT Delhi allowed the appeal of the assessee, ruling that the penalty imposed under section 271(1)(c) was not justified in this case. The Tribunal held that the disallowance of the expenditure did not amount to concealment or providing false information, leading to the deletion of the penalty.

In summary, the ITAT Delhi set aside the penalty imposed under section 271(1)(c) against the assessee, emphasizing that the disallowance of the expenditure did not constitute concealment or furnishing inaccurate particulars.