2018 (9) TMI 796 - HC - Income Tax

Penalty u/section 271(1)(c) - sum debited to the profit and loss account under the head other expenses , which was included under administrative and other expenses and the same was stated to have been incurred for land up-keep - Held that - Admittedly, the expenses, which were included under the head other expenses towards land up-keep, when pointed out by the Assessing Officer, to be justified, the assessee was unable to place any documents to substantiate the same. On the contrary, they accepted it as a non business expenditure. Accordingly, the same was added to the income. The assessee is a company engaged in financial services such as leasing and hire purchase finance and it is beyond one s apprehension that in their returns, they inadvertently included the sum incurred for land up-keep expenses and debited to the profit and loss account. There is nothing on record to show that the inclusion of the said sum under the head administrative and other expenses was an inadvertent error. Furthermore, the assessee was unable to substantiate their stand before the CIT (A) that there was an attempt to file revised returns. Thus, the Authorities below as well as the Tribunal rightly came to the conclusion, on the facts and in the circumstances of the case, that penalty was leviable on the assessee. - Decided against assessee

Summary

Issues:
Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for assessment year 1989-90 on the grounds of non-business expenses claimed as business expenses.

Analysis:
The judgment revolves around the issue of whether the penalty under Section 271(1)(c) of the Income Tax Act was justified in the case where non-business expenses were claimed as business expenses. The assessee admitted the expenses were non-business, leading to their addition to the income. The Assessing Officer issued a notice for penalty, which was confirmed by the CIT (A) and the Tribunal. The assessee contended it was not deliberate but an oversight. However, the CIT (A) considered it a willful omission since the assessee accepted the error after it was pointed out. The Tribunal upheld this decision, stating that the assessee agreed to the disallowance only after the Assessing Officer's query.

The judgment discusses the applicability of legal precedents in similar cases. The assessee cited the case of CIT Vs. Sri Saradha Textile Processors (P) Ltd., but the court found the factual position in that case different. The court rejected the argument that the assessee wanted to file a revised return, as it was not established. The court also examined the case of Price Waterhouse Coopers Pvt. Ltd. Vs. CIT, emphasizing that penalty is unwarranted for inadvertent errors, which was not applicable in this case.

Moreover, the court considered the nature of the assessee's business, which was financial services, and found it implausible that land up-keep expenses were inadvertently included in the profit and loss account. The Revenue relied on legal precedents like Mak Data P. Ltd. Vs. CIT and Lanxess India Pvt. Ltd. Vs. ACIT to support the penalty imposition. The court concluded that the penalty was rightly levied due to the failure to substantiate the claim of filing revised returns and the absence of evidence showing the inclusion of expenses as an inadvertent error.

In conclusion, the court dismissed the appeal, upholding the penalty under Section 271(1)(c) against the assessee. The judgment highlights the importance of substantiating claims, the significance of factual circumstances, and the application of legal principles in determining penalty imposition under the Income Tax Act.