2019 (10) TMI 1223 - AT - Income Tax

Penalty u/s.274 r.w.s. 271 - disallowance was suo motu at the commencement of assessment proceedings and when accounts were examined by the counsel, then assessee itself offered for the disallowance and has revised a computation - HELD THAT - Assessee suo motu vide letter dated 19.04.2016 had withdrawn certain losses and offered for disallowance in the revised computation on the reasons as incorporated above. It has been stated by the assessee before the authorities below that such a disallowance was suo motu at the commencement of assessment proceedings and when accounts were examined by the counsel, then assessee itself offered for the disallowance and has revised a computation. Thus, it cannot be held that the assesse had offered for disallowance only when assesse was cornered on specific issues relating to expenses. If the assessee offers any disallowance on its own volition without being confronted by with material or any query by the Assessing Officer then on such a disallowance no penalty u/s.271(1)(c) can be levied. Disallowance of expenses were beyond the scope of limited scrutiny for which assessee s case was selected and hence it cannot be held that simply because assessee s case was selected for scrutiny, therefore, assessee was persuaded for offering the disallowance of expenses. Under these facts and circumstances of the case, the penalty levied by the Assessing Officer is directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s.271(1)(c) for offering expenses suo motu and challenge to the validity of penalty notice.

Analysis:
1. The assessee filed a return declaring a loss, which was selected for scrutiny based on various points. The assessee revised the computation during assessment proceedings, withdrawing certain expenses. The Assessing Officer initiated penalty proceedings u/s. 271(1)(c) due to no business activity and disallowed expenses. The CIT(A) upheld the penalty, stating that inaccurate particulars were furnished by claiming inadmissible expenses.

2. The assessee contended that the expenses were not the subject of scrutiny, and before any query, revised the computation, demonstrating good faith. The assessee challenged the notice validity for not specifying charges. The assessee argued that penalty cannot be levied for suo motu disallowance. The DR cited cases supporting penalty imposition.

3. The ITAT found that the assessee voluntarily offered disallowance at the start of assessment proceedings without specific queries on expenses. As the disallowance was not prompted by the AO, no penalty under section 271(1)(c) was justified. The penalty was deleted as the disallowance was not within the scrutiny scope. The issue of specifying charges for penalty initiation was not addressed, being academic.

4. The ITAT allowed the assessee's appeal, ruling in favor of the assessee. The penalty imposed by the Assessing Officer was deleted. The judgment was pronounced on 30th July 2019.