2016 (5) TMI 710 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance or setting up of the business of manufacturing and export of garments - Held that - By applying the parameters laid down by Hon ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory ( 2013 (7) TMI 620 - KARNATAKA HIGH COURT ), it appears that there was full disclosure by the assessee, however the expenditure claimed was inadmissible in law. Respectfully following the ratio laid down above we are of the opinion that the disallowance of the claim of expenses would not amount to furnishing of inaccurate particulars by the assessee. We therefore delete the penalty levied in respect of the disallowance of claim of expenditure. In respect of depreciation claimed by the assessee, it is observed that the assessee has shown the income earned from renting of the property under the head Income from House Property . The assessee has wilfully shown the rental income under the head Income from House Property and further claimed depreciation. The assessee in such a situation has filed wrong particulars of income, which is apparent from the face of the record. We, therefore, confirm the penalty levied by the ld. AO on the disallowance of the depreciation. - Decided partly in favour of assessee

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income.

Detailed Analysis:

1. Background:
The appellant, engaged in the business of manufacturing and exports of Readymade Garments, filed an appeal against the penalty order passed by the CIT(A) confirming a penalty of ?2,20,000 levied under section 271(1)(c) of the Income Tax Act, 1961.

2. Assessment and Disallowances:
The AO noted that the appellant did not undertake any business activity during the year in question and disallowed certain expenses, including depreciation claimed on a building let out for rent. Subsequently, penalty proceedings were initiated under section 271(1)(c) for filing inaccurate particulars of income, leading to the imposition of the penalty.

3. Arguments and Submissions:
The appellant contended that the disallowed expenses and depreciation were bonafide errors, citing the decision of the Supreme Court in Reliance Petro Products Pvt. Ltd. vs. CIT. The appellant argued that the expenses were related to the formation of a manufacturing unit and that claiming depreciation on a property generating rental income was unintentional.

4. Legal Interpretation:
The Tribunal analyzed the provisions of section 271(1)(c) and distinguished between concealing income and furnishing inaccurate particulars of income. Referring to the case law, including CIT vs. Manjunatha Cotton & Ginning Factory, the Tribunal emphasized the need for a strict liability on the assessee for furnishing inaccurate particulars while filing the return.

5. Decision and Ruling:
Regarding the disallowed expenses, the Tribunal held that there was full disclosure by the assessee, and the disallowance did not amount to furnishing inaccurate particulars. Hence, the penalty on this ground was deleted. However, in the case of depreciation claimed on rental income, the Tribunal found that the appellant willfully filed wrong particulars of income, confirming the penalty on this aspect.

6. Final Verdict:
The Tribunal directed the AO to calculate the penalty only on the disallowed depreciation amount. Consequently, the appeal of the assessee was partly allowed, with the penalty upheld only on the depreciation disallowance. The judgment was pronounced on 08.04.2016 by the ITAT Delhi.

This detailed analysis provides an overview of the issues, arguments, legal interpretation, and final decision of the ITAT Delhi in the case concerning the penalty under section 271(1)(c) of the Income Tax Act, 1961.