2022 (7) TMI 1149 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowances were made on the ground that since the assessee is following project completion method, these expenses cannot be allowed as revenue expenditure and deserve to be capitalized - HELD THAT - Reliance on the Hon ble Supreme Court decision in the case of Reliance Petroproducts Pvt. Ltd. ( 2010 (3) TMI 80 - SUPREME COURT is germane and duly supports the case of the assessee. The assessee s claim cannot be said to ex-facie bogus. Hence, denial of the assessee s claim cannot lead to the rigors of penalty u/s 271(1)(c). Hence, we do not find any infirmity in the order of ld. CIT (A). Appeal by the Revenue stands dismissed.

Summary

Issues:
Penalty imposition under section 271(1)(c) for inaccurate particulars of income.

Detailed Analysis:

1. Grounds of Appeal by Revenue:
The Revenue raised concerns regarding the deletion of a penalty imposed under section 271(1)(c) by the AO. The appeal questioned the decision of the ld. CIT (A) in deleting the penalty amount of Rs.94,17,160/-, emphasizing that the assessee did not appeal against the disallowances made by the AO under section 143(3).

2. Cross Objections by Assessee:
The cross objections by the assessee highlighted the lack of recorded satisfaction by the Assessing Officer in the penalty notice regarding whether the penalty was leviable due to concealment of income particulars or furnishing inaccurate particulars. The absence of such satisfaction was argued to render the penalty order erroneous.

3. Background and Disallowances:
The appellant company, engaged in real estate development, faced disallowances during assessment proceedings under section 143(3). Disallowances included penalty on Service Tax, Advertisement Expenses, Brokerage & Commission, Brokerage Cancellation Charges, and Miscellaneous Expenses. The AO initiated penalty proceedings under section 271(1)(c) for inaccurate particulars of income related to these disallowances.

4. Assessee's Defense:
The assessee contended that the disallowed expenses were in line with Accounting Standard (AS)-2, which excludes selling and distribution costs from inventory costs. It was argued that the additions made were revenue-neutral and did not involve concealment. The assessee emphasized that treating certain expenses as capital was a debatable issue and not grounds for penalty imposition.

5. Decision of CIT (A):
The ld. CIT (A) deleted the penalty, stating that a mere disallowance of a claim does not constitute furnishing inaccurate particulars of income. The CIT (A) emphasized the importance of the assessee's explanation being bonafide and the disclosure of all material facts. Citing judicial decisions, the CIT (A) concluded that non-acceptance of the assessee's claim does not warrant penalty under section 271(1)(c).

6. Appellate Tribunal Decision:
The Appellate Tribunal upheld the CIT (A)'s decision, referencing the Supreme Court's ruling in Reliance Petroproducts Pvt. Ltd. The Tribunal noted that the denial of the assessee's claim did not automatically justify a penalty under section 271(1)(c). Consequently, the appeal by the Revenue was dismissed, affirming the correctness of the CIT (A)'s order.

7. Conclusion:
The Tribunal's decision highlighted the necessity for bonafide explanations and full disclosure of material facts to warrant penalty under section 271(1)(c). The case underscored that the mere rejection of an assessee's claim, especially when based on accounting standards, does not amount to furnishing inaccurate particulars of income.