2018 (9) TMI 468 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowance of expenditure under the Head Business Promotion - Held that - CIT(A), on verification of the bills and vouchers found there are some occasional gifts to the Doctors and staff of the hospitals and that some laptop is purchased and that ledger shows approximately ₹ 45,300/- have been spent for followup of tender in Armed Forces medical material supply Depot. It is not pointed out or any specific finding have been given that while incurring these expenses as to what offence is committed by the assessee-company and what is the prohibition by any Law which may not allow the assessee-company to incur these expenditure. Therefore, Explanation-1 to Section 37 may not apply in the case of the assessee-company. It is a case of disallowance of part of the expenses which have been incurred consistently by assessee-company in earlier years as well. Therefore, it is not a fit case for levy of the penalty. - Decided in favour of assessee

Summary

Issues:
Challenge against penalty under section 271(1)(c) of the I.T. Act, 1961 on disallowance of expenditure under the Head "Business Promotion".

Analysis:
1. Delay in Filing Appeal: The appeal was found to be time-barred by 09 days. The assessee attributed the delay to the illness of the Managing Director, supported by a Medical Certificate. The Tribunal accepted the explanation as sufficient cause and condoned the nominal delay in filing the appeal.

2. Disallowance of Expenditure: The Assessing Officer (A.O.) disallowed 25% of the expenses related to Business Promotion, resulting in a specific amount being added to the income of the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this disallowance, leading to the initiation of penalty proceedings.

3. Penalty Proceedings: The penalty was levied on the disallowed amount related to Business Promotion expenses. The assessee challenged this penalty, arguing that the expenses were part of regular business practices and had been allowed in earlier years. The Tribunal noted that the majority of expenses were incurred for business purposes, including occasional gifts and follow-up expenses for tenders. It was observed that no specific finding indicated any offense or violation of law by the assessee in incurring these expenses.

4. Justification for Penalty: The Tribunal considered the nature of the business, the regular incurring of similar expenses in previous years, and the lack of specific evidence indicating any wrongdoing by the assessee. It was emphasized that the disallowance of part of the expenses did not amount to concealment of income or filing inaccurate particulars. Therefore, the Tribunal concluded that the penalty under section 271(1)(c) of the I.T. Act was not justified in this case.

5. Decision: After careful consideration of the facts and circumstances, the Tribunal set aside the orders of the authorities below and canceled the penalty imposed on the assessee. The appeal of the assessee was allowed, and the penalty under section 271(1)(c) of the I.T. Act was revoked.