2019 (12) TMI 497 - AT - Income Tax

Penalty u/s 271(1)(c) - deduction of guesthouse expenses - HELD THAT - Whether the assessee has furnished inaccurate particulars of income by claiming the guest house expenses incurred by it. The wrong claim made by the assessee for the guest house expenses in the income tax return cannot be equated with inaccurate particular of income. It is because the genuineness of the guest house expenses incurred by the assessee was not in doubt, but the same was wrongly claimed in the profit and loss account. There was the short fall of the recoveries against the guest house expenses, that too on account of depreciation allowance amounting only. Had there been some more recoveries against the guest house expenses, then there would not have been any disallowance of such expenses. Thus we are of the view that the assessee has not deliberately claimed such expenses. Once the assessee has furnished all the particulars of expenses which were correct but wrongly claimed as deduction, does not attract the penalty. We hold that the assessee has made the wrong claim for the guest house expenses. But the wrong claim does not mean that the assessee has furnished inaccurate particular of income. Similarly, the disallowance of the repair expenses on estimated basis cannot be subject matter of the penalty as the questions for concealing and furnishing inaccurate particular of income does not arise. Penalty levied u/s 271(1)(c) is not justifiable in the given facts and circumstances. Accordingly, we delete the penalty imposed by the authorities below. Hence, the ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Appeal against penalty under section 271(1)(c) of the Income Tax Act.

Analysis:
1. The appeal was filed by the Assessee against the penalty imposed under section 271(1)(c) of the Income Tax Act. The Assessee contended that the penalty was confirmed by the Commissioner of Income Tax (Appeals) without properly appreciating the facts and without providing an opportunity of hearing. The main issue raised by the Assessee was the confirmation of the penalty amounting to ?1,28,631 under section 271(1)(c) of the Act.

2. The Assessee, a limited company engaged in the manufacturing business, declared a loss in its income tax return. The assessment was conducted under section 143(3) of the Act, resulting in certain additions/disallowances, including guesthouse expenses. The Assessing Officer (AO) charged the Assessee for furnishing inaccurate particulars of income, leading to the penalty imposition.

3. The AO contended that the Assessee was not entitled to the deduction of guesthouse expenses claimed in the return. The penalty was calculated as 100% of the tax sought to be evaded. The CIT(A) confirmed the penalty, stating that the Assessee's claim was incorrect in law and not made in a bona fide manner. The ITAT's order also supported the AO's decision to levy the penalty.

4. The Assessee argued that the penalty was imposed on an estimated addition, which was subjective and debatable, hence not justifiable. The Tribunal considered the Assessee's claim for guesthouse expenses and the shortfall in recoveries, concluding that the Assessee had not deliberately made the wrong claim. The Tribunal referred to the Supreme Court's judgment in the case of CIT Vs. Reliance Petro Products Ltd to support its decision.

5. The Tribunal held that the Assessee had furnished correct particulars of expenses but wrongly claimed them as deductions, which did not amount to furnishing inaccurate particulars of income. Therefore, the penalty under section 271(1)(c) was deemed unjustifiable in this case, and it was deleted. The appeal of the Assessee was allowed, and the penalty imposed by the lower authorities was set aside.