2021 (2) TMI 447 - AT - Income Tax

Penalty u/s 271(1)(c) - addition of legal and professional fees levied - assessee has debited expenditure in legal and professional expenses for the impugned assessment year based on the mandate given to the professionals and service providers - HELD THAT - The assessee submitted the details of the legal and professional charges as well as the details of sum written back. As these full facts were disclosed by the assessee we do not find that assessee has furnished any inaccurate particulars of income. It is not unusual that a provision is required to be made for some payable professional based on the mandate for services to be rendered for that particular year. It is also not impossible that those professional do not render such services in the next year and instead of that some other professional render such services. In that case the provision of legal and professional fees made in the earlier year was reversed in the subsequent year. Even otherwise expenditure is debited in the one year and if not paid same is reversed in the next year. It is not the case of the AO that no such mandate for provision of services was available from the professionals. There may be many reasons for a professional to not to render those services even after agreeing a particular fees. It may be because of multiple reasons. However such provision of services and it subsequent revision may result in disallowance of the expenditure but certainly it cannot lead to levy of penalty u/s 271 (1) (C) of the income tax act for furnishing of inaccurate particulars of income. The learned that lower authorities have not considered the above explanation of the assessee for first making provision for expenditure and subsequently writing back in the subsequent year. According to us, there is no inaccurate particulars of any income furnished by the assessee in this case. Full facts were already disclosed before the assessing officer. The details furnished were also not found to be false - we reverse the finding of the lower authorities and direct the ld AO to delete the penalty levied u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income. Appeal of the assessee is allowed

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act for inaccurate particulars of income based on disallowance of legal and professional fees.

Analysis:
The appeal was filed against the confirmation of a penalty under section 271(1)(c) of the Income Tax Act for inaccurate particulars of income due to the disallowance of legal and professional fees. The assessee, a company, had filed its return of income showing a loss. During assessment, it was noted that a sum of money was written back from legal and professional expenses in the following year, leading to an addition to the total income. The assessing officer initiated penalty proceedings under section 271(1)(c) based on inaccurate particulars furnished by the assessee. The contention that the penalty cannot be levied as the expenses were merely debited in one year and written back in the next was rejected by the AO, who imposed the penalty. The CIT(A) upheld the penalty, prompting the appeal.

The Tribunal considered the issue and found that the legal and professional expenses were debited based on a mandate for services to be rendered, but since the services were not provided by the original parties, the expenses were reversed in the subsequent year. The Tribunal noted that the assessee had paid for services to one firm, but the services were provided by another firm, leading to the reversal of expenses. The Tribunal concluded that the provision of services and subsequent reversal did not warrant a penalty under section 271(1)(c) as full facts were disclosed to the assessing officer, and no inaccurate particulars were furnished. The Tribunal held that the lower authorities had failed to consider the explanation provided by the assessee, and therefore directed the AO to delete the penalty.

In light of the above analysis, the Tribunal allowed the appeal of the assessee, reversing the penalty under section 271(1)(c) for furnishing inaccurate particulars of income.