2018 (5) TMI 1847 - AT - Income Tax

Penalty u/s. 271(1)(c) - payment under the head management service charges to shareholders treated as capital expenditure - HELD THAT - We have heard the rival submissions, perused the orders of the authorities below and the Coordinate Bench decision. On perusal of the Coordinate Bench decision for the Assessment Year 2007-08 we find that on identical circumstances penalty was deleted 2017 (3) TMI 810 - ITAT MUMBAI held that no information given in the return of assessee was found to be incorrect or inaccurate. The statement given by the assessee was not found to be factually incorrect hence prima facie assessee could not be held guilty for furnishing inaccurate particulars. Therefore, in this case the claim of the assessee was partly allowed by the CIT(A) and Tribunal has submitted the finding of CIT(A). Therefore, we are of the view that CIT(A) has rightly justified in following the decision of RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT . Whenever there is a debatable issue the penalty cannot be levied. - Decided in favour of assessee. Penalty under which limb - disallowance of prior period expenses - A.Y.2003-04 - AO not specified as to which limb of the penalty notice was invoked i.e. either for concealment of income or furnishing of inaccurate particulars of such income - non striking off the irrelevant portion of the charge - HELD THAT - On the technical issue we find that the Assessing Officer has not made the charge clear to the assessee i.e. the penalty is initiated either for concealment of income or for furnishing inaccurate particulars of income by striking off the irrelevant portion of the charge in the notice issued u/s. 274 r.w.s. 271(1)(c). We also find from the Assessment Order that the Assessing Officer except stating that penalty proceedings u/s. 271(1)(c) is being initiated, he has not mentioned as to on what charge the penalty proceedings are initiated i.e. either for concealment of income or for furnishing inaccurate particulars of income. See M/S. ORBIT ENTERPRISES VERSUS ITO-15 (2) (2) , MUMBAI 2017 (11) TMI 172 - ITAT MUMBAI . Thus notice issued u/s. 274 r.w.s. 271(1)(c) of the Act suffers from infirmity as it was issued on non-application of mind by the Assessing Officer Even on merits, we find that the penalty was levied for disallowing the expenses claimed by the assessee relating to prior period, the claim was based on the bills received by the assessee during the current Assessment Year. There is complete disclose of the expenses by the assessee in its Books of Accounts and therefore there is neither concealment of income nor furnishing of inaccurate particulars of income. Mere disallowance of expenses cannot attract levy of penalty u/s. 271(1)(c) of the Act, thus even on merits the assessee should succeed - Decided in favour of assessee.

Summary

Issues:
1. Penalty levied under section 271(1)(c) of the Income Tax Act for Assessment Years 2002-03 and 2003-04.

Detailed Analysis:
1. The appeals were filed by the Revenue against orders sustaining penalties for the mentioned assessment years. The penalty for the year 2002-03 was partially sustained by the Commissioner of Income-tax (Appeals), where 75% of management service charges were allowed as revenue expenditure. The Tribunal, in a previous case, had deleted a similar penalty as there was no concealment or furnishing of inaccurate particulars of income. The Coordinate Bench decision was referred to, emphasizing the need for concealment or furnishing of inaccurate particulars for penalty under section 271(1)(c) of the Act. Following the precedent, the penalty for 2002-03 was deleted due to the absence of concealment or inaccurate particulars.

2. For the assessment year 2003-04, the initiation of penalty proceedings was challenged on the grounds of not specifying the charge for which the penalty was invoked - whether for concealment of income or furnishing inaccurate particulars. The Assessing Officer failed to specify the charge clearly in the notice, leading to a lack of application of mind and rendering the penalty initiation flawed. The Tribunal cited a previous case where such a situation was deemed bad in law. Consequently, the penalty was held to be vitiated due to the defective notice.

3. On the merits of the issue for 2003-04, the penalty was imposed for disallowing expenses related to prior periods, despite the expenses being disclosed in the books of accounts and tax audit report. The genuineness of the expenditure was not in question, and there was no failure to disclose these expenses. The Tribunal found that there was no concealment or furnishing of inaccurate particulars of income, as the expenses were duly disclosed. Citing the decision in the case of CIT v. Reliance Petroproducts (P) Ltd., it was concluded that the mere disallowance of expenses does not warrant a penalty under section 271(1)(c). Therefore, the penalty for 2003-04 was directed to be deleted.

In conclusion, both appeals by the Revenue were dismissed, with penalties for the mentioned assessment years being deleted based on the absence of concealment or furnishing of inaccurate particulars of income.