2018 (7) TMI 1960 - AT - Income Tax

Penalty u/s 271(1)(c) - addition towards 14A, claim for membership fees and interest on late payment - HELD THAT - It is evident from the discussion made above that such penalty has been imposed on making disallowance of certain expenses. But for that, there is nothing on record to show that the assessee lodged bogus claims in respect of these expenses. That apart, the expenses were claimed by the assessee in a bona fide manner. The mere fact that the above disallowances have been made do not bring a case within the parameters set out in section 271(1)(c) Hon ble Supreme Court in CIT vs. Reliance PetroProducts Private Ltd. 2010 (3) TMI 80 - SUPREME COURT has held that a mere making of a claim which is not sustainable in law, by itself will not attract penalty 271(1)(c) when the assessee furnishes all the relevant particulars in his return which are not found to be inaccurate. There is no dearth of decisions holding that penalty under section 271(1)(c) cannot be imposed on disallowance of expenses, which were not otherwise bogus. Penalty deleted - Decided in favour of assessee.

Summary

Issues involved:
Penalty under section 271(1)(c) of the Income-tax Act, 1961 for disallowance of expenses.

Analysis:

1. Issue: Penalty imposition for disallowance of expenses
The appeal was against the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961, in relation to the Assessment Year 2013-14. The Assessing Officer made additions under section 14A of the Act and towards claim for membership fees and interest on late payment. These additions were the basis for the penalty upheld by the CIT(A).

2. Analysis:
The Tribunal noted that the penalty was imposed on disallowance of certain expenses, but there was no evidence to suggest that the assessee had made bogus claims or acted in bad faith. The expenses were claimed genuinely, and the mere disallowance did not meet the criteria for penalty under section 271(1)(c) of the Act. Citing the decision in CIT vs. Reliance PetroProducts Private Ltd., the Tribunal emphasized that a claim not sustainable in law does not automatically attract penalty if all relevant particulars are accurately disclosed. It was established that penalty cannot be imposed on disallowance of expenses that were not fraudulent.

3. Decision:
The Tribunal set aside the penalty imposed and directed its deletion, ruling in favor of the assessee. The appeal was allowed, and the order was pronounced in the open court on 26.7.2018.

This judgment highlights the importance of distinguishing between genuine expense claims and fraudulent activities when considering penalties under section 271(1)(c) of the Income-tax Act, ensuring that penalties are not imposed unjustly based solely on disallowances.