2023 (4) TMI 1339 - AT - Income Tax

Penalty u/s 271(1)(c) - Disallowance of expenditure under the head Employees benefit expenses, depreciation, administrative as revenue expenditure as there was no sale during the year under consideration - HELD THAT - When particulars provided by the assessee in the return of income are found to be correct except the allowability of the claim due to the provisions of law then the same cannot lead to the conclusion that the assessee has furnished inaccurate particular of income or concealment of particulars of income inviting the penalty u/s 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. In the case in hand, the assessee has claimed the expenses by debiting in the profit and loss account but the Ld. AO did not accept the claim on the ground that due to no sale during the year expenses ought to have been capitalized would not ipso facto attract penalty u/s 271(1)(c). As relying on judgment of Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT as well as Praveen B. Gada (HUF) 2011 (2) TMI 1106 - MADHYA PRADESH HIGH COURT the penalty levied by AO u/s 271(1)(c) of the Act by treating the expenditure as capital is not justified and the same is deleted. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Ex-parte order passed by CIT(A) without considering manual submissions.
2. Error in passing the order when the matter was initially heard manually.
3. Failure of CIT(A) to apply mind to the facts and peruse records.
4. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act.
5. Legitimacy of the penalty based on the facts of the case.

Issue-wise Detailed Analysis:

1. Ex-parte Order Passed by CIT(A) Without Considering Manual Submissions:
The assessee contended that the CIT(A) passed the order ex-parte without considering the submissions made manually before the transition to the faceless hearing process. The Tribunal acknowledged that the impugned order was passed without considering the manual submissions, which violated the principles of natural justice. The Tribunal emphasized that the CIT(A) should have considered the submissions made during the physical hearings before transitioning to faceless proceedings.

2. Error in Passing the Order When the Matter Was Initially Heard Manually:
The assessee argued that the CIT(A) erred by passing the order without considering the manual hearings conducted initially. The Tribunal noted that the CIT(A) was aware of the initial manual hearings and should have taken into account the submissions made during that period. The transition to faceless proceedings should not have disregarded the earlier manual submissions.

3. Failure of CIT(A) to Apply Mind to the Facts and Peruse Records:
The assessee claimed that the CIT(A) failed to apply his mind to the facts of the case and did not peruse the records before deciding the matter. The Tribunal observed that the CIT(A) did not consider the detailed submissions and records provided by the assessee, which was essential for a fair judgment. The Tribunal highlighted the importance of a thorough review of the facts and records in delivering a just decision.

4. Confirmation of Penalty Under Section 271(1)(c) of the Income Tax Act:
The core issue revolved around the confirmation of the penalty under Section 271(1)(c) of the Income Tax Act. The assessee argued that the penalty was not sustainable as there was no concealment of income or furnishing of inaccurate particulars. The Tribunal noted that the disallowance of expenses by the AO was based on a difference of opinion regarding the capitalization of expenses due to no sales during the year. The Tribunal emphasized that the genuineness and correctness of the expenses were not in dispute, and the disallowance was solely due to the AO's opinion on capitalizing the expenses.

5. Legitimacy of the Penalty Based on the Facts of the Case:
The Tribunal referred to the Supreme Court judgment in CIT vs. Reliance Petroproducts Pvt. Ltd. and the Jurisdictional High Court judgment in CIT vs. Praveen B. Gada (HUF). It was highlighted that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars of income. The Tribunal concluded that the assessee's claim was bona fide and the disallowance was due to a difference of opinion, not due to any concealment or inaccurate particulars. Consequently, the penalty under Section 271(1)(c) was deemed unjustified and was deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the penalty levied under Section 271(1)(c) of the Income Tax Act. The judgment emphasized the importance of considering all submissions, applying judicial mind to the facts, and distinguishing between genuine claims and concealment of income. The penalty was deleted, and the appeal was pronounced in favor of the assessee.