2019 (2) TMI 525 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowance of traveling expenses - Held that - Assessee cannot be penalized for making a claim of expenditure, which is not acceptable to Ld. AO. In fact it is found that Ld.A.O. disallowed expenditure on ad hoc basis. This itself shows that there is no dispute regarding all particulars being filed by assessee which is disallowed in part by Ld. AO on premise that it has not been incurred exclusively and wholly for purpose of business of assessee. AO has not brought on record anything contrary to establish that claim of assessee do not pertain to travelling expenses. From paper book filed before us it is observed that assessee has placed vouchers and invoices raised by airlines in respect of payments made for travel by its officials. Further Assessing Officer has not found fault with explanation offered by assessee in response to notice u/s 274 of the Act. Merely because disallowance has been made which has been confirmed by Ld.CIT(A), he proceeded to levy penalty on ad hoc disallowance - Decided in favour of assessee.

Summary

Issues Involved:
1. Penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.
2. Adhoc disallowances made by the Assessing Officer.
3. Allegation of deliberate attempt to evade taxes by making a malafide claim of travelling expenses.
4. Specificity of penalty initiation under the relevant section.

Issue 1: Penalty under section 271(1)(c):
The Appellate Tribunal ITAT Delhi heard an appeal against the penalty imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied based on ad hoc disallowances made by the Assessing Officer regarding travelling expenses claimed by the assessee. The Tribunal noted that for the penalty to be applicable, there must be a case of 'concealment' or 'furnishing inaccurate particulars of income.' It was observed that the Assessing Officer disallowed the expenditure on an ad hoc basis without conclusive evidence that the claimed expenses were not related to the business purpose. The Tribunal found that the assessee had provided vouchers and invoices for the expenses, and the Assessing Officer did not find fault with the explanations provided. Consequently, the Tribunal concluded that since the disallowance was made without solid evidence, the penalty under section 271(1)(c) was unjustified, and thus, the penalty was deleted.

Issue 2: Adhoc Disallowances:
The Assessing Officer had made ad hoc additions to the assessee's income concerning travelling expenses claimed by the assessee. The Tribunal noted that the disallowance was not based on concrete evidence but was made on an ad hoc basis. The Tribunal emphasized that the Assessing Officer did not provide conclusive material to support the disallowance. As a result, the Tribunal found the ad hoc disallowance to be arbitrary and lacking a solid foundation, leading to the deletion of the penalty imposed based on these disallowances.

Issue 3: Allegation of Tax Evasion:
The lower authorities alleged that the assessee deliberately attempted to evade taxes by making a malafide claim of travelling expenses. However, the Tribunal found that the disallowance was made without substantial evidence or conclusive material to prove deliberate tax evasion. The Tribunal emphasized that the disallowance was based on ad hoc grounds and lacked a clear link to deliberate tax evasion. Consequently, the Tribunal ruled in favor of the assessee, highlighting the lack of concrete evidence to support the allegation of tax evasion.

Issue 4: Specificity of Penalty Initiation:
The assessee raised a procedural issue regarding the specificity of the penalty initiation under section 271(1)(c) of the Income Tax Act, 1961. The Tribunal considered the argument that the initiation of penalty should specify the grounds under which the penalty is being imposed. The Tribunal noted that the penalty initiation lacked specificity in identifying the exact grounds for the penalty. However, since the Tribunal found the penalty unjustified based on the lack of concrete evidence for the disallowances, the procedural issue did not impact the final decision to delete the penalty.

In conclusion, the Appellate Tribunal ITAT Delhi allowed the assessee's appeal, deleting the penalty imposed under section 271(1)(c) due to the lack of conclusive evidence supporting the ad hoc disallowances made by the Assessing Officer. The Tribunal emphasized the importance of concrete evidence and specific grounds for penalty initiation under the Income Tax Act, 1961.