2012 (10) TMI 665 - AT - Income Tax

Levy of Penalty - Excess purchase claimed by assessee and Disallowance of expenses - Held that - There was a case of concealment of income insofar as the nomenclature excess purchase had been balanced by stock held by the assessee against which no controversy has been reported either by the Assessing Officer or the learned CIT(A). The purported income had been rendered to tax by the assessee itself. In other words, the claim of TCS as held by the authorities was a mere withholding of tax in which the deductor had committed error stood reconciled by indicating the purchases which was not an expenditure to be disallowed in view of the assessee holding physical stock of the said purchases. Similarly, part sustenance of expenditure disallowed under the various heads as Business promotion, depreciation cannot be a ground for levy of penalty u/s. 271(1)(c). Simply because a part of expenditure is unacceptable for deduction forming part of whole of the expenditure otherwise allowable clearly indicates that it was not a matter of concealment of income or for that matter furnishing of inaccurate particulars. Therefore, on this score, the penalty so levied u/s. 271(1)(c) does not have any legs to stand on.The said penalty of Rs.26,853 sustained by the learned CIT(A) is cancelled and the appeal of the assessee is allowed.

Summary

Issues:
Levy of penalty under Section 271(1)(c) based on wrong facts and technical errors in expenditure disallowance.

Analysis:
The appeal before the Appellate Tribunal ITAT CUTTACK focused on the solitary issue of penalty imposition under Section 271(1)(c) concerning the incorrect levy of penalty by the Assessing Officer. The case involved discrepancies in the assessment of purchases claimed by the assessee, which led to the addition of Rs.68,508 to the income. Additionally, disallowance of expenses related to business promotion, miscellaneous expenses, and depreciation were also contested. The first appellate authority partially upheld the disallowance, reducing it from Rs.20,205 to Rs.9,000. The Assessing Officer then imposed a penalty of Rs.35,000, which was later reduced to Rs.26,853 by the CIT(A).

The counsel for the assessee argued that the disallowance of expenses and excess purchases were technical errors, not constituting concealment of income or furnishing inaccurate particulars. It was highlighted that the accountant's inclusion of TCS as part of the purchase cost was a technical mistake, as the purchases were in line with the bills issued by OSBCL. The CIT(A) confirmed the addition of Rs.68,508 as excess purchase due to TCS not being considered an allowable expenditure. The tribunal agreed with the assessee, emphasizing that the errors were due to the deductor's oversight, not the assessee's violation of tax provisions.

The tribunal further noted that the disallowance of expenses and the excess purchase should not serve as grounds for penalty imposition under Section 271(1)(c). The authorities failed to establish any concealment of income or inaccurate reporting by the assessee. The penalty was deemed unjustified as the disallowed expenses were not indicative of deliberate misrepresentation. Citing relevant case laws, the tribunal concluded that the penalty of Rs.26,853 was unwarranted and overturned it, allowing the appeal of the assessee.

In summary, the judgment revolved around the incorrect imposition of a penalty under Section 271(1)(c) based on technical errors in expenditure disallowance and excess purchases. The tribunal ruled in favor of the assessee, highlighting that the discrepancies were not indicative of deliberate concealment or inaccurate reporting, leading to the cancellation of the penalty.