2016 (2) TMI 345 - AT - Income Tax

Penalty under section 271(1)(c) - addition of foreign travel expenses - Held that - There is no finding by the authorities below that the details furnished by the assessee were found to be incorrect or erroneous or false. In these factual circumstances, there would be no question of imposing penalty u/s. 271(1)(c) of the Act. A mere claim made in the return of income which is not acceptable by itself, will not amount to furnishing of inaccurate particulars or concealment of income. In this view of the matter, we are of the considered opinion that the foreign travelling expenses incurred, claimed by the assessee and disallowed by the Assessing Officer in the case on hand cannot be said to be attract the provisions of section 271(1)(c) of the Act to justify and sustain the levy of penalty thereunder. We, therefore, cancel the penalty - Decided in favour of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2007-08 based on disallowed foreign travel expenses.

Analysis:
The case involved the assessee, a company engaged in the design and supply of lighting products, filing its return of income for assessment year 2007-08, declaring total income of Rs. 880. The Assessing Officer disallowed expenditure of Rs. 3,52,271 on foreign travel, leading to penalty proceedings under section 271(1)(c) of the Act. The CIT(A) and Tribunal dismissed the appeals challenging the disallowance. Subsequently, the Assessing Officer levied a penalty of Rs. 1,18,573 under section 271(1)(c) of the Act, which was upheld by the CIT(A) based on the failure to produce evidence of foreign exchange obtained and establish the business purpose of the expenditure.

The assessee contended that the foreign travel expenses were clearly reflected in the profit and loss account, and detailed explanations were provided for the trips. The Assessing Officer disallowed the entire expenditure, including amounts spent on air tickets and Visa charges, due to lack of evidence for a portion of the expenses. The assessee argued that similar expenses in previous years were never doubted and that there was no concealment of income or inaccurate particulars, citing the decision of Reliance Petroproducts Pvt. Ltd. The Revenue supported the penalty levy.

Upon careful consideration, it was noted that the assessee had provided detailed explanations and the expenditure was reflected in the financial statements. The Assessing Officer's case was based on the failure to prove the expenditure was wholly and exclusively for business purposes. However, as per the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., a mere claim not accepted by the Assessing Officer does not warrant a penalty under section 271(1)(c). Since there was no finding of incorrect or false details, it was concluded that the penalty was not justified. Therefore, the penalty of Rs. 1,18,573 was canceled, and the assessee's appeal for assessment year 2006-07 was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing that the disallowed foreign travel expenses did not warrant a penalty under section 271(1)(c) as the details provided were not inaccurate or concealed.