2024 (9) TMI 366 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - addition is based on estimation by the AO which was later again estimated by CIT(A) to disallow 10 percentage of expenditure while adjudicating the quantum appeal - HELD THAT - It is also not disputed that assessee has furnished details regarding expenditure as well as income in the return of income. The disallowance by the revenue is due to the fact that it was not acceptable to the revenue. Hon ble Supreme Court in the case of CIT v. UP State Bridge corporation Ltd 2018 (8) TMI 766 - SC ORDER held that where assessee had furnished certain details regarding expenditure as well as in in return, which were not found inaccurate, nor could be viewed as concealment of income on part of assessee, merely because said claim was not accepted or was not acceptable by the revenue, that by itself would not attract penalty under section 271(1)(c) of the Act. We are of the view that no penalty can be levied in the case where the disallowance expenditure is estimated and therefore, we are inclined to delete the penalty levied by the Assessing Officer. Decided in favour of assessee.

Summary

Issues:
Appeal against penalty order under section 271(1)(c) of the Income Tax Act, 1961 based on estimation of labour expenses.

Detailed Analysis:
The appeal was filed by the assessee against the penalty order passed under section 271(1)(c) of the Income Tax Act, 1961, arising from an assessment where the Assessing Officer disallowed a portion of labour expenses claimed by the assessee due to lack of supporting vouchers or bills. The Commissioner of Income Tax (Appeals) directed a higher disallowance, which was confirmed by the ITAT Tribunal, Visakhapatnam Bench. The penalty proceedings were initiated based on this disallowance, leading to the levy of a penalty of Rs. 8,93,288. The assessee challenged this penalty order before the Commissioner of Income Tax (Appeals), who upheld the penalty.

The grounds of appeal raised by the assessee included arguments that the penalty proceedings were unsustainable due to lack of specificity in the notice, incorrect invocation of Explanation 1 to section 271(1)(c), and absence of clear findings by the Assessing Officer. The assessee also contended that the disallowance of labour expenses on an estimation basis did not amount to concealment or furnishing of inaccurate particulars of income. Additionally, it was argued that the penalty was not justified in cases of genuine differences of opinion between the assessee and the department regarding allowable claims.

During the proceedings, the Authorized Representative cited relevant case laws to support the contention that penalties cannot be levied based on estimated additions. The Departmental Representative, on the other hand, relied on the orders of the Revenue Authorities.

The Tribunal, after considering the arguments and case laws presented, held that penalties cannot be imposed when disallowances are made on an estimated basis. Citing judicial precedents, the Tribunal concluded that since the disallowance of expenditure was estimated, the penalty levied by the Assessing Officer was not valid. Consequently, the Tribunal allowed the appeal of the assessee and deleted the penalty.

The Tribunal's decision was based on the principle that penalties under section 271(1)(c) cannot be imposed solely on estimated additions or disallowances. As a result, the Tribunal allowed the appeal of the assessee, emphasizing that penalties cannot be levied in cases where expenditure disallowances are made on an estimation basis.