2014 (2) TMI 428 - AT - Income Tax

Validity of Penalty u/s 271(1)(c) of the Act Held that - In the absence of complete and convincing corroborative evidence, the Revenue may justifiably disallow certain part of the expenses claimed by the assessee - but the onus lies heavily on the Revenue to prove that the assessee had concealed its income or has filed inaccurate particulars of its income - The Revenue has failed to prove that the claim of the expenses under the head wages to workers were non-genuine or were inflated by the assessee. Merely because certain expenses have been claimed by the assessee to have incurred in cash and were not supported by documentary evidence to the satisfaction of the Revenue authorities, it could not be said that the Revenue has proved that the expenses claimed were inflated or non-genuine Relying upon CIT Vs. Reliance Petro Products P. Ltd. 2010 (3) TMI 80 - SUPREME COURT - it is not a fit case to levy penalty under section 271(1)(c) of the Act, which was rightly cancelled by the CIT(A) Decided against Revenue.

Summary

Issues:
Validity of penalty imposed under section 271(1)(c) of the Act.

Analysis:
1. Issue: Validity of penalty under section 271(1)(c) of the Act.
- The Revenue appealed against the CIT(A)'s order regarding the penalty imposed under section 271(1)(c) for the assessment years 2005-2006 and 2004-2005.
- The Revenue argued that the assessee claimed workers' wages without proper documentation, leading to non-genuine expenses.
- The AO found discrepancies in the vouchers and lack of supporting evidence for cash payments made to workers.
- The Revenue relied on various decisions to support the imposition of the penalty based on non-genuine expenses.

2. Analysis:
- The assessee contended that the disallowance was at a flat rate of 20% due to cash payments, but all expenses were supported by vouchers.
- The assessee explained that the voucher numbers were computer-generated, causing discrepancies with physical vouchers.
- The assessee maintained higher gross profit during the relevant period and argued that the penalty was not justified.
- Citing the decision in CIT Vs. Reliance Petro Products P. Ltd., the assessee claimed that a mere disallowance of expenses does not warrant a penalty under section 271(1)(c).

3. Decision:
- The Tribunal examined the AO and CIT(A) orders along with the arguments presented.
- It found that while there were certain disallowances due to cash payments and voucher discrepancies, they did not justify a penalty under section 271(1)(c).
- The Tribunal emphasized that the Revenue failed to prove that the expenses were non-genuine or inflated by the assessee.
- Referring to the legal precedent, the Tribunal concluded that the penalty was not warranted in this case.
- Consequently, the Tribunal dismissed the appeals of the Revenue, upholding the cancellation of the penalty by the CIT(A).

4. Conclusion:
- The judgment highlights the distinction between disallowances in assessment proceedings and penalties for concealment of income.
- It underscores the burden on the Revenue to prove deliberate concealment or inaccurate reporting by the assessee for penalty imposition.
- The decision in this case rested on the lack of evidence supporting non-genuine expenses, leading to the dismissal of the Revenue's appeals.
- The legal analysis and application of relevant precedents demonstrate a thorough consideration of the facts and legal principles in determining the validity of the penalty under section 271(1)(c) of the Act.