2024 (4) TMI 838 - AT - Income Tax

Penalty u/s 271(1)(c) - charge was not made specific - concealing income or furnishing inaccurate particulars - return of income was filed only in response to notice u/s 148 - as alleged assessee has concealed particulars of income by not filing the return of income and provided inaccurate particulars during the assessment by not proving the authenticity of the expenses and not disclosing the income - HELD THAT - No doubt the assessee has submitted before us many judicial precedents wherein where there is an ad hoc disallowance of the expenditure; it is held that penalty cannot be levied. Though this cannot be a universal principle. We find that had the case is that the assessee is unable to substantiate the amount of expenditure; the learned assessing officer should have disallowed 100 % percent of such expenditure by giving a sufficient reason. By disallowing 50% and allowing 50% of that expenditure the learned assessing officer is also not clear whether the assessee has concealed income or has furnished inaccurate particulars of income. In the assessment order the charge is not specific. In the penalty order twin charges are invoked for the levy of the penalty. When there is no specific charge raised by the AO at the time of assessment as well as in the notice and assessee has not been confronted with the same specific charge for furnishing reply before the assessing officer AO levying a penalty on both the charges without proving that both the charges apply is not proper. The various judicial precedents cited before us are also support the case of the assessee that in case of ad hoc disallowance penalty u/s 271(1)(c) does not survive unless there are specific reasons. Accordingly we reverse the order of the lower authorities and direct the learned assessing officer to delete the penalty u/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves the confirmation of penalty u/s 271(1)(c) of the Income Tax Act, 1961 by the Appellate Tribunal ITAT Mumbai against the order passed by the National faceless appeal Centre, Delhi for the assessment year 2014-15.

Issue 1: Confirmation of Penalty by CIT Appeals
The assessee filed an appeal against the penalty order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, challenging the confirmation of penalty amounting to Rs. 8,77,980/-. The CIT Appeals upheld the penalty, noting the failure of the assessee to provide documentary evidence and lack of interest in pursuing the matter. The CIT Appeals also found the assessing officer's facts and circumstances to be correct, leading to the penalty confirmation.

Issue 2: Assessment and Disallowance of Expenses
The assessing officer disallowed 50% of the claimed expenses of the assessee, totaling Rs. 28,33,427/-, under section 37(1) of the act. The disallowance was based on the lack of supporting documents to substantiate the expenses. Additionally, the assessing officer considered income received by the assessee from non-residents, as the return of income was not filed under section 139(1) of the act.

Issue 3: Initiation of Penalty Proceedings
Penalty proceedings were initiated u/s 271(1)(c) as the assessee failed to file a return of income, leading to the assessing officer's conclusion of concealing income and providing inaccurate particulars. The penalty of Rs. 8,77,980/- was levied at the rate of 100% of the tax sought to be evaded. The CIT Appeals rejected the assessee's explanation, resulting in the confirmation of the penalty.

Issue 4: Appeal Before ITAT Mumbai
The assessee appealed before the ITAT Mumbai, arguing that the penalty should not have been levied based on the disallowance made on an ad hoc basis. The authorized representative emphasized that the penalty was unjustified as the assessing officer did not specifically request detailed explanations for the expenses. The departmental representative defended the penalty, stating that the disallowance was justified due to the failure of the assessee to substantiate expenses.

Conclusion:
The ITAT Mumbai reversed the decision of the lower authorities, directing the assessing officer to delete the penalty of Rs. 8,77,980/- u/s 271(1)(c) of the act. The tribunal found that the penalty was not justified as the specific charges were not raised by the assessing officer, and the disallowance of expenses was not clear. The judgment in ITA number 1145/M/2024 was allowed in favor of the assessee.