2021 (9) TMI 1526 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - Furnishing of inaccurate particulars of income in respect of process loss - Assessee has submitted that wastage was borne by the assessee in case of export sale and in case of local sale it was borne by the parties - in the assessment made u/s. 143(3) AO has made disallowance of processed loss - CIT(A) after reducing the sale made from wastage product i.e. chindri fandrages restricted the disallowance - HELD THAT - We have gone through the judicial pronouncement referred by the ld. counsel in the case of CIT Ahd Vs. Reliance Petro Products P. Ltd. 2010 (3) TMI 19 - SUPREME COURT wherein it is held that mere making of the claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim in the return of income cannot amount to inaccurate particulars of income. In the light of the above facts and findings we consider that only on the basis of not accepting the claim made by the assessee the levy of penalty u/s. 271(1)(c) is not appropriate. Accordingly the Assessing Officer is directed to delete the penalty. Therefore this ground of appeal of the assessee is allowed.

Summary

Issues:
Penalty under section 271(1)(c) for inaccurate particulars of income regarding process loss disallowance.

Analysis:
The appeal pertained to the assessment year 2013-14, challenging the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for sustaining the disallowance of process loss. The Assessing Officer disallowed the claim of process loss amounting to Rs. 45,17,186 during the assessment under section 143(3) of the Act. The assessee explained that the shrinkage of fabrics during processing necessitated compensation to customers for any shortage or wastage. However, the majority of bills were related to local sales, leading to the disallowance of the claimed process loss.

The assessee appealed to the CIT(A), who upheld the penalty, prompting the assessee to further challenge the decision. The counsel argued that a mere disallowance of expenses does not automatically attract penalty under section 271(1)(c), citing relevant court decisions. The Departmental Representative supported the lower authorities' orders.

Upon review, the ITAT found that the penalty was imposed for furnishing inaccurate particulars of income regarding the process loss of Rs. 4,48,825. The CIT(A) had reduced the disallowance to Rs. 4,48,825 from the originally disallowed amount. Referring to legal precedents, the ITAT emphasized that a claim not sustainable in law does not necessarily constitute furnishing inaccurate particulars of income. Merely rejecting an assessee's claim does not warrant a penalty under section 271(1)(c). Consequently, the ITAT directed the Assessing Officer to delete the penalty, allowing the assessee's appeal.

In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal and ordering the deletion of the penalty. The decision was pronounced on 17-09-2021.