2008 (4) TMI 371 - AT - Income Tax

Summary

Issues involved:
The judgment involves the imposition of penalty under section 271(1)(c) of the IT Act on the amount claimed as Leave Travel Concession (LTC) paid to an employee, and the dispute regarding whether the expenditure was incurred for business purposes.

Details of the Judgment:

1. Imposition of Penalty under Section 271(1)(c):
The Assessing Officer (AO) initiated penalty proceedings under section 271(1)(c) of the IT Act based on the addition of Rs. 2,37,370 claimed as LTC paid to an employee. The AO imposed a penalty of Rs. 1,58,760, which was confirmed by the CIT(A) in part. The penalty was imposed due to the disagreement between the assessee and the Department regarding the nature of the expenditure and whether it was incurred for business purposes.

2. Assessee's Arguments:
The assessee contended that the amount was spent in the course of business for the welfare of the employee and was debited in the books. The assessee's representative argued that the expenditure was genuine and not bogus, and relied on legal precedents to support their case.

3. Department's Position:
The Departmental Representative supported the penalty, stating that the expenditure was not wholly and exclusively for business purposes. It was highlighted that the employee receiving the LTC was related to the director of the company, and TDS was not deducted on the amount, leading to inaccurate particulars being furnished.

4. Tribunal's Decision:
After considering the submissions and perusing the records, the Tribunal found that there was a difference of opinion between the assessee and the Department regarding the business nature of the expenditure. The Tribunal noted that the expenditure was disallowed due to lack of sufficient proof of business expediency, but it was not found to be bogus. The Tribunal held that the assessee's failure to establish the case in quantum proceedings did not warrant a penalty under section 271(1)(c).

5. Conclusion:
The Tribunal concluded that the explanation offered by the assessee for claiming the deduction was bona fide, and there was no evidence of concealment or furnishing inaccurate particulars. Therefore, the penalty imposed by the AO and confirmed by the CIT(A) was canceled, and the appeal was allowed in favor of the assessee.