2023 (6) TMI 1266 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Addition confirmed by CIT(A) for concealment of income - HELD THAT - We find that the quantum proceeding and the penalty proceeding are different. Any addition or disallowances made under quantum proceeding do not ipso facto empower the revenue authority to levy penalty u/s 271(1)(c) - In the penalty proceeding it has to be proved by the revenue based on cogent material that the assessee has either concealed income or furnished inaccurate particulars of income. Disallowances made during the quantum proceeding is of interest expenses which was considered as excessive by the Revenue authority - What is transpired that it is not the case that claim of the assessee altogether found incorrect or assessee has not incurred such interest expenses. As such it is a case where revenue authority was of opinion that the assessee was paying interest at excessive rate as compared to market rate. Hence, in our considered opinion, the same does not amount to concealment of income or furnishing incorrect particular of income. Penalty u/s 271(1)(c) of the cannot be levied merely for the reason that certain claim made by the assessee is not allowable or excessive in the opinion of revenue authority. In holding so we draw support and guidance from the judgment of Reliance Petroproducts Pvt .Ltd 2010 (3) TMI 80 - SUPREME COURT The addition made was based on estimation of reasonable rate of interest. As such the assessee paid interest at different rate, the AO estimated different and the learned CIT-A further estimated different rate of interest. It settled position of law by the various High Court that the no penalty under section 271(1)(c) can be sustained in case of estimated addition. See Norton Electronics System Pvt. Ltd 2014 (2) TMI 606 - ALLAHABAD HIGH COURT - Thus in view of the above discussion we are of the opinion that no penalty u/s 271(1)(c) of the Act can be levied on addition/disallowances of interest expenditure found to excessive as compared to market rate. Nature of expenses - computer repair maintenance expenses and excess depreciation - purchase of computer to be treated as revenue or capital expenditure - HELD THAT - Again it is case of difference of opinion where assessee claimed certain deduction in the return of income which was not accepted by the AO. Hence, the question of concealment of income or furnishing inaccurate particular of income does not arise as held by the Hon ble Supreme Court in case Reliance Petroproducts Pvt .Ltd (supra). Therefore, we are of the opinion that no penalty under section 271(1)(c) of the Act can be levied on addition/disallowances of computer repair maintenance expenses and excess depreciation. Disallowances against Credit card expense and computer expenses respectively for the reason that same were either not supported by the documentary evidences or held as personal in nature - The question has been answered in preceding paragraph of this order that the quantum and penalty proceeding are different and any addition/disallowances made in quantum proceeding do not ipso facto empower the revenue authority to levy penalty under section 271(1)(c) - As such revenue authority have to prove based on cogent material that the assessee has concealed income willfully with mala fide intension. There is no such finding of the Revenue authority in the penalty proceeding. Further considering the amount involve we do not agree with contention of the revenue of authority that the assessee concealed his income by claiming deduction of impugned credit card expense and computer expenses. We hereby set aside the finding of the learned CIT(A) and direct the AO to delete the penalty levied - Decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961.

Summary:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 30 days. The assessee's representative explained that the delay was due to an employee's failure to inform the tax advocate. The Revenue did not oppose the condonation petition. The Tribunal, considering the explanation and lack of opposition, condoned the delay and proceeded to adjudicate the issue on merit.

2. Confirmation of Penalty under Section 271(1)(c):
The core issue was the confirmation of penalty under section 271(1)(c) of the Income Tax Act. The assessee, engaged in trading and export, faced various additions during assessment under section 143(3), leading to penalty proceedings. The CIT(A) confirmed certain additions, resulting in a penalty proposal by the AO for Rs. 7,30,994/-.

The assessee contended that the penalty proceedings lacked jurisdiction and that no penalty should be levied as the quantum addition was set aside by the ITAT. However, the CIT(A) found that ITAT had confirmed the addition of Rs. 6,86,466/- and directed the AO to re-compute the penalty.

The Tribunal observed that penalty proceedings are distinct from quantum proceedings. Additions or disallowances in quantum proceedings do not automatically justify penalties under section 271(1)(c). The Tribunal cited the Supreme Court's judgment in Reliance Petroproducts Pvt. Ltd., emphasizing that mere disallowance of claims does not constitute concealment of income.

Specific Additions/Disallowances:
- Interest Expenses: The disallowance was based on the revenue authority's estimation of a reasonable interest rate, not on incorrect claims by the assessee. The Tribunal held that penalty cannot be levied for such estimations.
- Capital Expenditure and Depreciation: The disallowances were due to differences in opinion on the nature of expenses and applicable depreciation rates. These do not amount to concealment of income.
- Credit Card and Computer Expenses: Disallowances for lack of supporting evidence or personal nature do not automatically imply concealment of income.

The Tribunal concluded that the Revenue failed to prove willful concealment of income. Consequently, the penalty levied was deleted, and the appeal was allowed.

Conclusion:
The Tribunal allowed the appeal, setting aside the penalty imposed under section 271(1)(c) and directing the AO to delete the penalty. The order was pronounced on 31/03/2023 at Ahmedabad.