2018 (3) TMI 659 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - proof of concealment of income or for furnishing of inaccurate particulars of income - Held that - Mere disallowance in the course of assessment does not lead to levy of penalty u/s. 271(1)(c), unless there is a finding that assessee has a concealed income or furnished inaccurate particulars. There is no indication that the disallowance/addition made by the AO falls in any of these categories stated above, as there is no discussion even about initiation of penalty proceedings. The order of AO indicates that it is a mere disallowance, consequent to survey operations conducted. The case does not fall either under the head concealment of income or under furnishing of inaccurate particulars so as to attract penalty under Sec.271(1)(c). As the facts indicate that there is no need for levy of penalty on mere disallowance of a certain claim made in the P&L A/c. - Decided in favour of assessee.

Summary

Issues:
Confirmation of penalty u/s. 271(1)(c) of the Income Tax Act for AYs 2011-12 & 2012-13 based on coordination charges; Specificity of penalty notice; Disallowance of expenditure by AO; Dispute on concealment of income or furnishing of inaccurate particulars.

Analysis:

1. Confirmation of Penalty u/s. 271(1)(c):
The appeals were against the penalty confirmation under section 271(1)(c) of the Income Tax Act for the assessment years 2011-12 & 2012-13. The key issue was the levy of penalty on the assessee concerning coordination charges. The assessee contended that the penalty was not warranted as there was no concealment of income or furnishing of inaccurate particulars. The CIT(A) upheld the penalty, but the tribunal found that the disallowance made by the AO was more than what was admitted by the assessee during the survey. The tribunal concluded that the case did not fall under 'concealment of income' or 'furnishing of inaccurate particulars,' hence the penalty was not justified.

2. Specificity of Penalty Notice:
The assessee raised an additional ground in AY 2012-13, arguing that the penalty notice did not specify whether it was for concealment of income or furnishing inaccurate particulars. The tribunal considered this argument but ultimately focused on the substantive issue of whether the penalty was warranted based on the facts of the case.

3. Disallowance of Expenditure by AO:
The AO disallowed coordination expenses claimed by the assessee, stating that the expenses were not acceptable and were added to the total income returned. The AO made disallowances for both AYs 2011-12 and 2012-13, based on the survey findings and the statements recorded during the survey operations. The tribunal noted that the AO disallowed more amount than what was actually spent by the assessee, leading to a dispute over the correctness of the disallowance.

4. Dispute on Concealment of Income or Furnishing Inaccurate Particulars:
The crux of the matter was whether the disallowance of the coordination expenses constituted concealment of income or furnishing of inaccurate particulars. The assessee argued that the disallowance was merely a disallowance of expenditure and did not amount to concealment or furnishing inaccurate particulars. The tribunal agreed with the assessee, emphasizing that the disallowance made by the AO was not based on any findings of concealment or inaccuracies in the particulars furnished by the assessee.

In conclusion, the tribunal allowed the appeals of the assessee, finding that the penalty under section 271(1)(c) was not justified in this case. The tribunal held that the disallowance of expenditure did not amount to concealment of income or furnishing of inaccurate particulars, as the AO had disallowed more amount than what was admitted by the assessee. The judgment highlighted the importance of distinguishing between a mere disallowance of expenditure and actual concealment or furnishing of inaccurate particulars to levy penalties under the Income Tax Act.