2018 (5) TMI 999 - AT - Income Tax

Levy of penalty under section 271(1)(c) - income from other sources - wrong claim of deduction of the expenditure deliberately - Held that - The assessee declared income from other sources. Therefore, it is the duty of the assessee to explain that expenses related to income from other sources have any direct nexus with the earning of such income. A.O. found specific fact against the assessee that assessee made a wrong claim of expenditure against the income from other sources. The assessee failed to prove any direct nexus with the expenses claimed with income from other sources. The assessee was, therefore, confronted with the fact vide order sheet dated 23rd September, 2016 and 06th October, 2016 as to why the claim of the assessee should not be disallowed. The assessee had no explanation but to accept the addition proposed by the A.O. Claim of assessee of deduction for expenditure was found false and bogus. It is, therefore, clear case, where fact of filing inaccurate particulars have been detected by the A.O. at assessment stage that assessee made a wrong claim of deduction of the expenditure deliberately. It is a common knowledge that only few returns are selected for scrutiny. If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such claim is not found to be bonafide, it would be difficult to say that assessee would still not liable to penalty under section 271(1)(c). Decision in the case of Zoom Communication Pvt. Ltd., (2010 (5) TMI 34 - DELHI HIGH COURT), squarely applied to the facts of the case. - Decided against assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the I.T. Act, 1961 for the A.Y. 2014-2015.

Analysis:
The case involved a challenge against the penalty imposed under section 271(1)(c) of the I.T. Act, 1961 for the assessment year 2014-2015. The Assessing Officer (A.O.) disallowed a deduction under section 57 amounting to ?16,60,121, which was claimed as income from other sources. The disallowance was related to expenses against assured returns from various entities. The assessee failed to establish a direct nexus between the expenses claimed and the income from other sources. The A.O. initiated penalty proceedings as the assessee admitted to the lack of connection between the expenses and income. The A.O. considered it a willful act of filing inaccurate particulars, relying on the decision of the Hon'ble Delhi High Court. The penalty was imposed based on this addition.

Upon appeal, the Ld. CIT(A) upheld the penalty, rejecting the assessee's contention that the surrender of the amount was a proactive measure to avoid detection by the department. The Ld. CIT(A) found that the assessee was aware of the facts before surrendering the amount and dismissed the appeal.

During the proceedings, the assessee sought adjournment but failed to appear on the scheduled date. The Revenue relied on the lower authorities' orders, supporting the penalty imposition.

The Judicial Member of the Appellate Tribunal upheld the penalty, emphasizing that the assessee failed to prove a direct nexus between the claimed expenses and income from other sources. The A.O. had found the claim of deduction to be false and bogus, leading to the detection of inaccurate particulars. The Tribunal agreed that the claim was not only legally incorrect but also lacked a genuine basis, warranting the penalty under section 271(1)(c) of the I.T. Act. The decision of the Hon'ble Delhi High Court in a similar case was cited to support the dismissal of the appeal. Consequently, the appeal of the assessee was dismissed, affirming the penalty imposed by the A.O.

In conclusion, the Appellate Tribunal upheld the penalty under section 271(1)(c) of the I.T. Act, emphasizing the importance of establishing a direct nexus between claimed expenses and income from other sources to avoid penalties for inaccurate particulars.