2024 (7) TMI 85 - AT - Income Tax

Penalty u/s 27(1)(c) - addition made on account of electricity charges - Claim of electricity expenses was disallowed because the assessee failed to produce the supporting evidences. HELD THAT - It is a matter of record that the process of sorting grains is an essential part of business activity of the assessee and the assessee has installed the sorting machine which cannot run without electricity. Sorting machine is a part of Plant Machinery shown in the balance sheet of the assessee and AO has allowed the depreciation on the said machine. Therefore, the existence and use of sorting machine for the business purpose has not been disputed by the AO. Hence, where the consumption of electricity in the process of sorting the food grains and pulses is an inevitable part of business activity of the assessee then the claim of electricity expenses is not an absolutely bogus claim but the same was disallowed for want of supporting evidence. The assessee has explained the claim of electricity as the machine is used in the godown owned by the husband of the assessee and therefore, the electricity connection was also in the name of husband of the assessee. AO has not disputed this fact to the extent of the godown owned by the husband of the assessee however, since the assessee could not furnish the supporting evidence of electricity bill in her name the claim of the assessee was disallowed. Even the assessee failed to substantiate the claim, the explanation of the assessee for such failure and the claim of the assessee is not mala fide but the same falls in the ambit of bona fide claim and explanation. Though the assessee was not able to substantiate the explanation but the explanation of the assessee is a bona fide one and consequently the disallowance made by the AO for want of supporting evidence would not ipso facto lead to the conclusion that the assessee has furnished inaccurate particulars of income or concealed particulars of income. The decision of Clariant Chemicals (India) Ltd 2015 (2) TMI 994 - BOMBAY HIGH COURT is specifically on the facts when the weighted deduction u/s 35 of the Act was claimed by the assessee in respect of non existing items of capital expenditure. Accordingly, in the facts and circumstances of the case the penalty levied u/s 271(1)(c) of the Act is deleted. Appeal of the assessee is allowed.

Summary

Issues:
Penalty order under section 271(1)(c) of the Act for Assessment Year 2012-13 based on disallowance of electricity expenses.

Detailed Analysis:
The appeal pertains to a penalty order under section 271(1)(c) of the Income Tax Act for the Assessment Year 2012-13. The Assessing Officer disallowed electricity expenses of the assessee, a trader engaged in the sale and purchase of food grains and pulses, during the scrutiny assessment under section 143(3). The penalty was levied against the disallowance of electricity expenses along with other additions. The Tribunal had previously deleted the addition made on purchases but confirmed the addition on electricity charges, leading to the penalty being restricted to the disallowed electricity expenses.

The assessee contended that the electricity expenses claimed were for a godown used for business purposes, specifically for sorting and processing grains. The assessee argued that the claim was genuine, supported by the presence of a sorting machine in the godown, which was part of the plant and machinery. Despite the disallowance for lack of evidence, the assessee maintained that the claim was bona fide and essential for business operations, citing relevant legal precedents.

On the other hand, the Revenue argued that the assessee failed to provide evidence such as electricity bills to substantiate the claim during assessment proceedings. Relying on court judgments, the Revenue contended that the penalty was justified due to the lack of supporting documentation.

The Tribunal considered the submissions and noted that the disallowance was due to the absence of evidence, although the use of electricity for sorting grains was crucial for the business. The Tribunal found that while the assessee could not substantiate the claim with documentation, the explanation for the failure was bona fide. The Tribunal referenced Explanation 1 to Section 271(1)(c) of the Act, emphasizing that a genuine but unsubstantiated explanation does not imply inaccurate particulars of income. Drawing on legal precedents, the Tribunal concluded that the penalty on disallowed electricity expenses was unwarranted and deleted it, ruling in favor of the assessee.

In summary, the Tribunal allowed the appeal, highlighting the importance of a genuine but unproven explanation in penalty assessments under section 271(1)(c) of the Income Tax Act. The decision underscored the distinction between a lack of evidence and deliberate concealment of income, ultimately favoring the assessee in this case.