2012 (11) TMI 937 - AT - Income Tax

Penalty u/s 271(1)( c) diversion/shifting of expenses of sister concern to the assessee - travelling expenses and business promotion expenses Held that - Expenditure disallowed represents the expenses debited by the assessee company in its account books with regard to the tours undertaken by the directors of the group companies of the assessee and it is an admitted fact that the disallowed expenses were not incurred by the assessee company for its business purposes - assessee could not explain any valid reason for debiting the expenses incurred by the directors of the other companies for the business purpose of the group companies and which do not relate to the business of the assessee company - assessee has not controverted the facts of payments of the expenses by credit card of the persons, who are not the director of the assessee company - it is a case of diversion/shifting of expenses of sister concern to the assessee with a view to reduce the tax liability. The act of the assessee in claiming the said expenditure shows dis-honest motive and therefore, attracts the penal provisions of sec. 271(1)( c) of the IT Act

Issues:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act for Assessment Year 2000-01.
2. Disallowance of travelling expenses and business promotion expenses.
3. Challenge to the penalty order based on the grounds of limitation and justification for expenses.

Issue 1: Levy of Penalty under Section 271(1)(c):
The appeal before the Appellate Tribunal ITAT Mumbai was directed against the penalty order passed under section 271(1)(c) of the Income Tax Act for the Assessment Year 2000-01. The penalty was imposed by the Assessing Officer on the disallowance of certain expenses claimed by the assessee. The Tribunal confirmed the disallowance and upheld the penalty imposed, considering the nature of the expenses and the explanations provided by the assessee.

Issue 2: Disallowance of Travelling Expenses and Business Promotion Expenses:
The Assessing Officer disallowed a significant amount of travelling expenses and business promotion expenses claimed by the assessee during the assessment. The Tribunal confirmed a portion of the disallowance, emphasizing that the expenses were not incurred for the business purposes of the assessee but were related to other group companies. The Tribunal held that expenses must be wholly and exclusively for the business purpose of the assessee to be allowable. The disallowance was based on the fact that the expenses were not directly related to the assessee's business activities.

Issue 3: Challenge to the Penalty Order:
The assessee challenged the penalty order on the grounds of limitation and justification for the expenses. The revised grounds of appeal highlighted the contention that there was no concealment or furnishing of inaccurate particulars of income, and thus, the penalty should be deleted. However, during the hearing, the assessee did not press the ground regarding the limitation of the penalty order. The Tribunal dismissed this ground. The main argument put forth by the assessee was that the disallowance of expenses did not warrant the levy of a penalty, citing relevant judicial precedents. On the other hand, the Revenue argued that the expenses claimed were not related to the assessee's business and constituted a clear case of furnishing inaccurate particulars of income.

In conclusion, the Tribunal upheld the penalty imposed under section 271(1)(c) based on the findings that the expenses claimed were not genuinely related to the business of the assessee and were diverted from sister concerns to reduce tax liability. The Tribunal emphasized the importance of bona fide claims and the consequences of making incorrect or mala fide claims. The decision was in line with the provisions of the Income Tax Act and relevant judicial interpretations, leading to the dismissal of the appeal filed by the assessee.

---

← Previous Next →