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2022 (3) TMI 212 - AT - Income TaxPenalty u/s 271(1)(c) - Disallowance of business expenditure - HELD THAT - No doubt assessee is not carrying out any business activity. However, the business of the assessee is not completely wind up by the state government and when assessee has to incur certain expenditure in order to keep the establishment alive we observe that assessee has earned only other income and not earned business income from receipts. Further, we observe that the assessment proceedings and penalty proceedings are two different proceedings we are in agreement with the finding of the Ld.CIT(A) that a particular claim made legitimately in the return of income and not allowed because of provision, the mere disallowance of legitimate claim where the factual matrix has not been suppressed, penalty cannot be leviable. In the given case assessee has brought on record all the relevant information that assessee has not carried out any business activity however it has incurred certain expenditure and claimed the same as allowable under the head business expenditure . However, the tax authorities thought it differently and disallowed the same. Merely because tax authorities has not allowed the expenditure claimed by the assessee it is certainly falls within the category of particulars declared by the assessee and the fact are same to the facts of CIT v. Reliance Petro Products (P) Ltd. 2010 (3) TMI 80 - SUPREME COURT Therefore, we are in agreement with the finding of the Ld.CIT(A), accordingly, we do not see any infirmity with the decision of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed.
Issues Involved:
1. Disallowance of business expenditures and depreciation claimed by the assessee. 2. Imposition of penalty under section 271(1)(c) for furnishing inaccurate particulars of income. Detailed Analysis: 1. Disallowance of Business Expenditures and Depreciation: The assessee, a wholly-owned corporation of the Government of Maharashtra, filed its return of income for the assessment year 2011-12, declaring a total loss of ?20,01,24,010. The assessment was made under section 143(3) of the Income-tax Act, 1961, determining the total income as Nil by disallowing the claimed loss. The disallowance was primarily due to the non-engagement in any business activity during the year and the non-utilization of assets for business purposes. The assessee's alternative claim under section 57(iii) of the Act was also rejected. The Assessing Officer initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income, which resulted in a penalty of ?6,64,76,192. Upon appeal, the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] dismissed the assessee's appeal. The assessee argued that the claimed expenditures were necessary for maintaining the corporate structure and fulfilling legal compliance requirements, despite the cessation of business operations. The Ld.CIT(A) noted that the company was in the process of winding up as per the Government of Maharashtra's decision and that administrative expenditures were necessary until the formal winding up. The Ld.CIT(A) also acknowledged that the depreciation claimed was allowable as part of the block of assets, and the interest received was considered business income to offset expenses. 2. Imposition of Penalty under Section 271(1)(c): The Ld.CIT(A) deleted the penalty levied by the Assessing Officer, observing that the mere disallowance of a claim does not automatically lead to the imposition of a penalty. The Ld.CIT(A) emphasized that the assessee had disclosed all necessary facts and that the claim was made in good faith without any concealment or falsehood. The Ld.CIT(A) referenced the Supreme Court's judgment in CIT vs. Reliance Petroproducts (P) Ltd., which held that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars of income. The Revenue appealed against the Ld.CIT(A)'s decision, arguing that the assessee had no business receipts and therefore could not claim business-related expenses. The Revenue contended that the case law relied upon by the Ld.CIT(A) was distinguishable from the present case. Upon hearing the arguments, the Tribunal noted that the assessee, being a government-owned entity, was incurring administrative expenditures to maintain its corporate structure until the winding-up process was completed. The Tribunal agreed with the Ld.CIT(A) that the assessment and penalty proceedings are separate and that legitimately claimed expenditures, if disallowed, do not automatically attract penalties. The Tribunal found that the assessee had disclosed all relevant information and that the disallowance of expenditures was a matter of interpretation rather than concealment. Consequently, the Tribunal upheld the Ld.CIT(A)'s decision to delete the penalty. The Tribunal also considered the Revenue's reliance on CIT v. S.V. Angidi Chettiar, but found the facts of that case to be different and not applicable to the present case. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the Ld.CIT(A)'s decision to delete the penalty imposed under section 271(1)(c). The Tribunal affirmed that the disallowance of expenditures and depreciation, in this case, did not constitute furnishing inaccurate particulars of income, as the assessee had made the claims in good faith with full disclosure of facts.
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