2024 (5) TMI 293 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of cash business expenses by invoking provisions of Sec 40(A)(3) - HELD THAT - We find that in this case, assessee does not deserve to be visited with the rigours of penalty u/s 271(1)(c) of the Act. The case laws cited above duly supports the case of the assessee MSK CONSTRUCTIONS P. LTD. 2007 (3) TMI 181 - MADRAS HIGH COURT and RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT . Furthermore, the conduct of the assessee is not contumacious. Accordingly, relying on the precedent as above, we delete the penalty. Appeal filed by the assessee is allowed.

Summary

Issues involved:
The issues involved in this case are the confirmation of penalty u/s 271(1)(c) for disallowance of cash business expenses u/s 40(A)(3) and the applicability of deeming provisions in penalty proceedings.

Confirmation of Penalty u/s 271(1)(c) for Disallowance of Cash Business Expenses u/s 40(A)(3):
The appeal was directed against the order confirming penalty u/s 271(1)(c) for disallowance of cash business expenses of Rs. 2,25,148/- under section 40(A)(3) for the assessment year 2016-17. The AO had made additions under sections 14A and 40A(3), with the ITAT upholding the disallowance under section 40A(3) of Rs. 2,25,148/-. The penalty amount levied was Rs. 1,72,227/-, which was confirmed by the ld. CIT (A). The assessee contended that no penalty should be levied as the disallowance was under deeming provisions. The Tribunal, after considering the arguments, found that the assessee did not deserve the penalty under section 271(1)(c) as the disallowance was made under deeming provisions. The Tribunal relied on case laws to support its decision and deleted the penalty, ultimately allowing the appeal filed by the assessee.

Applicability of Deeming Provisions in Penalty Proceedings:
The assessee argued that the disallowance of expenses under deeming provisions should not attract a penalty. The counsel referred to a decision by the Hon'ble Madras High Court in the case of CIT vs. MSK Constructions (P) Ltd., where it was held that when there is no tax payable, penalty could not be levied for disallowance under section 43B of the Act. Additionally, reliance was placed on the decision of the Hon'ble Apex Court in the case of CIT vs. Reliance Petro Products, where it was established that mere disallowance of expenses does not amount to concealment of income. The Tribunal, after careful consideration, agreed with the assessee's arguments and deleted the penalty under section 271(1)(c) based on the precedent cited and the non-contumacious conduct of the assessee.