2016 (10) TMI 43 - AT - Income Tax

Penalty u/s. 271(1)(c) - Addition on Legal and professional charges and Cost of investment written off - Held that - In the present case the legal and professional fee paid to various professionals was duly disclosed in the books of account and the same have been paid by cheques to the consultants. Tax was also deducted at sources on such payments. The bills of the legal consultants were also produced before the AO. Therefore, there being complete disclosure of these expenditures before the AO, no penalty could be imposed against the assessee on the basis of disallowance of the same, in view of various decisions relied upon by the assessee as noted above. Similarly, regarding the written off investments it is not in dispute that the appellant company purchased shares of Modi Creata Promotion Ltd. during the F.Y. 2001-02, and liquidation of the said company was approved by the High Court. The relevant papers are placed on record. In presence of these circumstances, the entire amount invested, is said to have been written off in the books of account, as the said amount was not expected to be recovered. The factum of investment and its write off was also completely disclosed before the AO in the financial statement furnished by assessee. However, on disallowance of this claim of assessee, it is not justified to hold that the appellant has concealed the particulars of income or has furnished inaccurate particulars of such income entailing penalty u/s. 271(1)(c) of the Act as held in several decisions relied by the assessee. In view of what has been discussed above, we come to the conclusion that the ld. Authorities below are not justified to impose or confirm the penalty against the assessee u/s. 271(1)(c) of the Act. - Decided in favour of assessee.

Issues Involved:
1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
2. Imposition of penalty on disallowance of legal and professional charges.
3. Imposition of penalty on disallowance of cost of investment written off.

Detailed Analysis:

1. Validity of Penalty Proceedings:
The appellant argued that the penalty proceedings were invalid as the notice issued under Section 271(1)(c) read with Section 274 was in a printed format and did not specify the exact charge against the assessee, i.e., whether it was for concealing particulars of income or furnishing inaccurate particulars of income. The appellant relied on various judicial decisions, including the Karnataka High Court decision in CIT vs. Manjunatha Cotton & Ginning Factory, to support this claim. However, the Tribunal noted that this issue was neither raised before the CIT(A) nor in the grounds of appeal or by way of additional ground before the Tribunal. Consequently, the Tribunal found this issue non-maintainable due to the appellant's procedural lapse.

2. Imposition of Penalty on Disallowance of Legal and Professional Charges:
The appellant contended that the legal and professional charges amounting to ?17,36,080 were duly disclosed in the books of account, paid by cheques, and subjected to TDS. The bills were also produced before the Assessing Officer (AO). The Tribunal observed that the mere disallowance of these expenses by the department does not automatically imply concealment of income or furnishing inaccurate particulars. The Tribunal cited the Supreme Court decision in CIT vs. Reliance Petroproducts (P) Ltd., which held that merely making an unsustainable claim does not amount to furnishing inaccurate particulars. The Tribunal concluded that there was complete disclosure of these expenditures, and thus, no penalty could be imposed.

3. Imposition of Penalty on Disallowance of Cost of Investment Written Off:
The appellant had written off ?12,50,000 as the investment in Modi Creata Promotion Ltd. turned valueless due to liquidation approved by the High Court. The Tribunal noted that the factum of investment and its write-off was completely disclosed in the financial statements. The Tribunal relied on several judicial decisions, including CIT vs. IFCI Ltd., to support the claim that such a write-off should not attract penalty under Section 271(1)(c). The Tribunal held that the disallowance of this claim by the department does not justify the imposition of penalty for concealment or furnishing inaccurate particulars.

Conclusion:
The Tribunal concluded that the authorities below were not justified in imposing or confirming the penalty under Section 271(1)(c) of the Act. The appeal of the assessee was allowed, and the impugned order was set aside. The Tribunal emphasized that mere disallowance of claims by the department does not automatically lead to the conclusion of concealment or furnishing inaccurate particulars, especially when full disclosure has been made by the assessee.

Order Pronouncement:
The appeal of the assessee was allowed, and the order was pronounced in the open court on 24.08.2016.

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