2018 (5) TMI 712 - AT - Income Tax

Penalty u/s. 271(1)(c) - claim of expenditure on rent disallowed - Held that - There cannot be any reason for the assessee to deliberately claim the expenditure even knowing that it is not allowable. That being the case, the allegation of the department that the assessee has furnished inaccurate particulars of income is not borne out from the record. More so, when the assessee has furnished full particulars of the expenditure claimed and its accounts are audited. Notably, the auditors have also not pointed out that the disputed amount being in the nature of provisions are not allowable. Merely, because the assessee has accepted the addition would not automatically lead to the conclusion that it has furnished inaccurate particulars of income. Moreover, the contention of the assessee that considering the huge losses the assessee would not have derived any benefit by wrongly claiming such expenditure stands to reason . No infirmity in the order of the CIT(A) in deleting the penalty - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty imposed under section 271(1)(c) for assessment year 2012-13 based on disallowed expenditure claimed by the assessee.

Analysis:
The department filed an appeal challenging the deletion of penalty under section 271(1)(c) imposed by the Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The Assessing Officer disallowed certain expenditures claimed by the assessee, leading to the initiation of penalty proceedings. The department alleged inaccurate particulars and income concealment. The assessee explained the deductions, but the penalty was still imposed. The CIT(A) noted that penalty proceedings are separate from assessment and deleted the penalty based on the Supreme Court's decision in CIT vs. Reliance Petroproducts Private Ltd. The CIT(A) found that the information provided by the assessee was not incorrect or inaccurate, thus penalty under section 271(1)(c) was not justified.

The department argued that the assessee claimed deductions for expenses that were actually provisions and not allowable, especially as tax was not deducted at the source. The department contended that the assessee knowingly furnished inaccurate particulars of income. However, the CIT(A) and the assessee's representative countered by stating that the claimed expenditures had crystallized and were ascertainable, supported by correct particulars in the audit report. The CIT(A) upheld the deletion of the penalty, emphasizing that the assessee's financial position and lack of tax impact justified the deduction acceptance.

The Tribunal considered both sides' arguments and examined the disallowed advertisement and rent expenses. It noted that the provisions claimed by the assessee were treated as liabilities due to accumulated losses exceeding paid-up capital. The Tribunal found the assessee's explanation plausible, especially as the Assessing Officer determined the income at 'nil' after considering losses. The Tribunal emphasized that the assessee provided full particulars of the claimed expenditure, and the audited accounts did not raise concerns. Accepting the additions made by the Assessing Officer did not automatically imply inaccurate particulars of income. Citing the Supreme Court's decision, the Tribunal upheld the CIT(A)'s decision to delete the penalty, dismissing the department's appeal.

In conclusion, the Tribunal dismissed the department's appeal, upholding the CIT(A)'s decision to delete the penalty under section 271(1)(c) for the assessment year 2012-13.