2016 (12) TMI 168 - AT - Income Tax

Penalty u/s. 271(1)(c) - false claim of business expenditure - Held that - As in the notes to account there is no mention of the payment of ₹ 73,60,000/- and the reasons for making this payment. No rebuttal has been given by the assessee to these findings of fact, which go to suggest that the appellant has not made a complete disclosure in terms of Explanation 1 to section 271(1)(c) of the Act. We therefore, find no justification to disregard the finding of the ld. CIT(A) that the assessee had made a false claim that he is engaged in the hotel business with motive to claim deduction of impugned expenditure falsely as revenue expenses. The explanation offered by the assessee being not bona fide, the ld. Authorities below have rightly applied Explanation 1 to section 271(1)(c) of the Act in the peculiar facts and circumstances of the present case. In view of above discussion, it follows that it is not a case where the explanation given by assessee was bona fide and there was full disclosure of facts. The assessee has also not been able to substantiate the explanation offered by any credible evidence. - Decided against assessee

Summary

Issues:
Challenge to penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for inaccurate particulars of income.

Analysis:
The case involved an appeal against the sustenance of a penalty of ?27,04,800 imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The appellant, a company resulting from the demerger of another entity, acquired a hotel premises and paid ?73,60,000 to tenants for vacant possession. The appellant claimed this as revenue expenditure under section 37(1) of the Act. However, the authorities disallowed the deduction, leading to penalty proceedings. The appellant argued that all payment particulars were disclosed during assessment and relied on the Bikaner Gypsum Ltd. case. On the contrary, the Department contended that the appellant furnished inaccurate particulars by falsely claiming to run a hotel business. The Tribunal noted that section 37(1) allows deductions only for business-related expenses, which the appellant did not have as per the demerger agreement. The Tribunal found discrepancies in the appellant's statements regarding the nature of business, leading to a conclusion that the expenses were capital in nature. The Tribunal upheld the penalty, citing lack of bona fide explanation and evidence supporting the appellant's claim. The decision was based on the unambiguous language of the Act and previous court rulings, dismissing the appeal and sustaining the penalty.

In conclusion, the Tribunal dismissed the appellant's appeal, emphasizing that the explanation offered lacked bona fide intent and failed to provide credible evidence to support the claim. The Tribunal upheld the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, based on the clear provisions of the Act and established legal precedents.