2017 (9) TMI 1526 - AT - Income Tax

Penalty u/s 271(1)(c) - interest expenses disallowance - Held that - A.O did not issue any summons u/s 131 to these parties against whom interest expenses was claimed nor any notices u/s 133(6) were issued to these parties to seek confirmations from these parties to whom interest were claimed to have been incurred. Thus, the AO did not made any enquiry rather disallowance has been made despite assessee bringing on record details of said interest expenses incurred by the assessee. The assessee has discharged its onus as it lay under penalty provision u/s 271(1)(c) as the assessee has come out with bonafide explanation and it was for the AO to have brought on record cogent and positive material to disprove the claim of the assessee. Thus, it is a case where the assessee made a claim of expenditure which did not found favour with the AO and merely because it was not accepted by the AO does not warrant levy of penalty automatically u/s 271(1)(c) . No such positive incriminating material is brought on record to disprove the claim of the assessee by authorities below. The case of the assessee gets support from the decision of Hon ble Supreme Court in the case of CIT v. Reliance Petroproducts Private Limited (2010 (3) TMI 80 - SUPREME COURT) as in the instant case of the assessee , the assessee made a claim of expenses which did not found favour with Revenue and merely because claim of expenses is not accepted by Revenue, the penalty u/s 271(1)(c) is not automatic. We hereby order deletion of penalty on this ground also , as levied by the AO and as confirmed by learned CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) for furnishing inaccurate particulars of income concerning the loss on sale of flat.
2. Penalty under Section 271(1)(c) for furnishing inaccurate particulars of income concerning additional income from the film "Fire" and disallowed expenses.

Detailed Analysis:

1. Penalty under Section 271(1)(c) for Loss on Sale of Flat:
During the assessment proceedings, the AO observed that the assessee claimed a loss of ?12,07,799 on the sale of a flat. The assessee provided a letter from Mayberry Properties Pvt. Ltd. confirming the transaction, but the AO rejected this as insufficient proof since no registered sale deeds were presented. Consequently, the AO disallowed the loss, and this decision was upheld by the CIT(A) and later the ITAT when the assessee withdrew the appeal on this ground.

In the penalty proceedings, the AO levied a penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) confirmed the penalty, stating that the assessee did not provide sufficient evidence to substantiate the transaction. The assessee argued that the transaction was genuine and supported by banking records and previous similar transactions allowed as speculative losses. The Tribunal noted that the assessee provided a bonafide explanation supported by documents, including bank statements and confirmatory letters, and the AO did not conduct further inquiries to disprove the assessee's claims. The Tribunal referenced the Supreme Court's decision in CIT v. Reliance Petroproducts Pvt. Ltd., which held that mere disallowance of a claim does not automatically lead to penalty. Thus, the Tribunal ordered the deletion of the penalty on this ground.

2. Penalty under Section 271(1)(c) for Additional Income from Film "Fire":
The AO observed that the assessee disclosed additional income of ?51,00,000 during the assessment proceedings but claimed expenses of ?52,56,828, resulting in a net income addition of ?19,90,500. The AO disallowed a portion of the claimed expenses, leading to the penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) upheld the penalty, stating that the assessee did not voluntarily disclose the income and failed to provide adequate confirmations for the claimed expenses.

The Tribunal noted that the assessee provided loan confirmations and reconciliations, and the AO did not issue notices under Sections 133(6) or 131 to verify these claims. The Tribunal highlighted that disallowance of a claim does not automatically warrant a penalty if the assessee provides a bonafide explanation. The Tribunal referenced the Supreme Court's decision in CIT v. Reliance Petroproducts Pvt. Ltd., emphasizing that the penalty is not justified merely because the claim was disallowed. Consequently, the Tribunal ordered the deletion of the penalty on this ground as well.

Conclusion:
The Tribunal allowed the appeal, ordering the deletion of penalties levied under Section 271(1)(c) for both the loss on the sale of the flat and the additional income from the film "Fire." The Tribunal emphasized that the assessee provided bonafide explanations and that mere disallowance of claims does not justify penalties without further incriminating evidence.