2024 (10) TMI 258 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Addition of expenditure in the absence of production of bills and vouchers - HELD THAT - Assessee is engaged in the business of purchase of agriculture lands from farmers / land owners for development or to sell and in the F.Y. 2005- 06, the assessee has debited land development expenses incurred during the period from 1995 to 2005 on acquisition of lands, as the assessee could not submit the details/vouchers till the completion of the assessment proceedings and accordingly the AO has made the addition. Whereas the CIT(A) on the land development expenses claim has granted partial relief to the extent of 25% of the claim and sustained @75% - In the penalty proceedings, AO has issued a show cause notice dated 20.01.2020 and A.O observed that since the assessee has not filed any explanations and the assessee has furnished the inaccurate particulars of income has levied penalty. Prima facie, it is clear that the assessee has complied with the notice and filed the submissions on 28-01- 2020 before the penalty order is passed. We considered the facts that the assessee is dealing with the farmers in acquisition of lands being a unorganized market and claiming land development expenses paid from the period 1995 to 2005, the assessing officer has made disallowance with the finding that the assessee has not submitted the details/bills and vouchers and further the assessing officer has not doubted the genuineness of claim of land development expenditure. We are of the view that penalty cannot be automatic and every addition in the assessment proceedings cannot be gate way for levy of penalty and relay on the decision of Manjunatha Cotton and Ginning factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT Similarly the penalty cannot be levied in case of adhoc disallowance and estimation i.e. 75% of the total claim sustained by the CIT(A) in the absence of bills and vouchers. Whereas the assessee has made a claim under the bonafide belief that it is allowable under the law and we rely on the ratio of decision of CIT Vs. Reliance Petroleum Products Ltd 2010 (3) TMI 80 - SUPREME COURT - We are of the opinion that the penalty cannot be sustained. Appeal filed by the assessee is allowed.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Act by the National Faceless Appeal Centre (NFAC) and CIT(A).
2. Disallowance of various expenditures by the Assessing Officer (A.O) leading to the addition of amounts to the total income.
3. Partial relief granted by CIT(A) on certain expenditure claims.
4. Levying of penalty by the A.O on sustained expenses.
5. Confirmation of penalty by CIT(A) and subsequent appeal to the Tribunal.

Issue 1: Confirmation of penalty under section 271(1)(c) of the Act
The appellant challenged the penalty levied under section 271(1)(c) by the NFAC and CIT(A). The Assessing Officer initiated the penalty proceedings based on disallowed land development expenses. The appellant argued that penalty provisions should not apply when expenses are disallowed on an estimation basis and supported by a bonafide belief. The Tribunal found that the appellant had submitted explanations and details before the penalty order was passed, complying with the notice. Relying on judicial decisions, the Tribunal held that penalty cannot be automatic and should not be levied in cases of adhoc disallowance without supporting bills and vouchers. Ultimately, the Tribunal set aside the CIT(A) order and directed the Assessing Officer to delete the penalty, allowing the appeal in favor of the assessee.

Issue 2: Disallowance of various expenditures by the Assessing Officer
The Assessing Officer disallowed several expenditures claimed by the assessee, including land development expenses, administrative expenses, compensation to a retiring member, and payment to farmers for land acquisition. The A.O made additions to the total income based on these disallowances. The CIT(A) partially upheld the disallowances, granting relief on some claims but sustaining others. The disallowances were made due to the lack of supporting documentation and details provided by the assessee. These disallowances led to the initiation of penalty proceedings under section 271(1)(c) by the A.O.

Issue 3: Partial relief granted by CIT(A) on certain expenditure claims
The CIT(A) considered the grounds of appeal, submissions, and findings of the Assessing Officer regarding various expenditure claims. The CIT(A) partially allowed the appeal by granting relief on some claims while sustaining others. Notably, the CIT(A) granted partial relief on the land development expenses claim but upheld the disallowance of compensation paid to a retiring member of AOP. The CIT(A)'s decision on these claims influenced the subsequent penalty proceedings initiated by the A.O.

Issue 4: Levying of penalty by the A.O on sustained expenses
Following the CIT(A)'s decision to partially sustain certain expenditure claims, the Assessing Officer levied a penalty under section 271(1)(c) on the sustained land development expenses. Despite submissions made by the assessee, the A.O proceeded with the penalty order, alleging inaccurate particulars of income furnished by the assessee. The appellant challenged the penalty before the CIT(A, which confirmed the penalty levied by the A.O. Subsequently, the assessee appealed to the Tribunal seeking relief from the penalty imposed.

Issue 5: Confirmation of penalty by CIT(A) and subsequent appeal to the Tribunal
The CIT(A) upheld the penalty imposed by the Assessing Officer under section 271(1)(c) on the sustained expenses. The appellant, aggrieved by the CIT(A) order, filed an appeal before the Tribunal. During the hearing, the appellant argued against the confirmation of the penalty, emphasizing compliance with submissions and the absence of doubt on the genuineness of the expenditure claims. The Tribunal, after considering the submissions, facts, circumstances, and relevant judicial decisions, concluded that the penalty could not be sustained. Consequently, the Tribunal set aside the CIT(A) order and directed the Assessing Officer to delete the penalty, ultimately allowing the appeal filed by the assessee.