2017 (2) TMI 1125 - AT - Income Tax

Penalty u/s 271(1)(c) - whether the payment of transportation charges and claiming the same as deduction constituted concealment of income or filing inaccurate particulars of income? - Held that - The penalty cannot be imposed merely on the basis that the assessee has not filed any appeal against the quantum addition and more so when the tribunal decision upholding the claim of the assessee to claim the payments of charges to Iraqi regime as admissible which stands upheld by the jurisdictional high court. The penalty proceedings are independent proceedings which are to be decided on the basis of merits of each case. In the present case, the Calcutta Bench of the Tribunal in Rajrani Exports (P) Ltd 2012 (6) TMI 62 - ITAT, Kolkata has already decided that the payment made on account of transportation charges as admissible which cannot be disallowed on the basis of Volcker Committee report and hence penalty on such disallowance which is wrong and against the spirit of the Act cannot be sustained . Accordingly, we set aside the order of ld.CIT(A) and direct the AO to delete the penalty. - Decided in favour of assessee.

Summary

Issues Involved:
Challenge to penalty under section 271(1)(c) of the Income Tax Act, 1961 for disallowance of inland transportation charges under section 37(1) of the Act.

Detailed Analysis:

1. Issue of Penalty Imposition:
The appeal challenged the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961, amounting to ?9,57,282 for the assessment year 2002-03. The penalty was imposed due to disallowance of ?28,16,366 on account of freight/transportation charges under explanation to Section 37(1) of the Act. The penalty proceedings were initiated as the AO considered the disallowance to be a case of furnishing inaccurate particulars of income and concealing income. The First Appellate Authority upheld the penalty, leading to the appeal before the ITAT Mumbai.

2. Assessee's Arguments:
The Assessee contended that the disallowed transportation charges were paid as per contractual obligations to the Government of Iraq under the Oil for Food Programme, which was not illegal or against any statute. The Assessee cited various decisions supporting the admissibility of such payments as business expenses under section 37(1) of the Act. The Assessee argued that the disallowance based on the Volcker Committee report was not a valid reason for penalty imposition, as previous tribunal decisions had allowed similar payments.

3. Revenue's Position:
The Revenue heavily relied on the orders of the lower authorities to support the penalty imposition. However, the Assessee argued that the disallowance was based on incorrect grounds and that the payments were legitimate business expenses incurred for fulfilling contractual obligations.

4. Judgment and Conclusion:
After considering the arguments and case laws, the ITAT Mumbai held in favor of the Assessee. The Tribunal found that the disallowed transportation charges were admissible business expenses under section 37(1) of the Act, as per previous decisions and the contractual nature of the payments. The Tribunal emphasized that penalty proceedings should be decided on the merits of each case independently. Since the disallowance was not justified and was contrary to the spirit of the Act, the penalty was deemed unsustainable, and the ITAT directed the AO to delete the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.

In conclusion, the ITAT Mumbai allowed the appeal of the Assessee, setting aside the penalty imposed by the Assessing Officer and directing the deletion of the penalty amount.