2016 (4) TMI 116 - AT - Income Tax

Penalty u/s 271(1)(C) - disallowance of expenses - Held that - After hearing counsels from both the sides and considering the nature of expenses disallowed by the AO which substantially allowed in the quantum appeal by the Tribunal. We are of the view that these were bonafide claim of the assessee and were incurred or provided by considering the same to be admissible under the law. The salary of the partners was provided under the expert views however wrongly calculated whereas the amount incurred in respect of foreign tour expenses and subscription and membership were fully and exclusively incurred for the business and is supported by bills and vouchers. This can at the most be regarded a case of difference of opinions where out of huge disallowance a small fraction had survived till the final disposal of the quantum appeal. The case of the assesee find strong support from the decision of the Apex Court in the case of (i) Reliance Petroproducts (P.) Ltd. (2010 (3) TMI 80 - SUPREME COURT) the Hon ble Supreme Court has held, where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. - Decided in favour of assessee

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act.
2. Disallowance of partners' remuneration.
3. Disallowance of foreign tour expenses.
4. Disallowance of club membership and subscription expenses.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The primary issue in this appeal is the confirmation of a penalty of Rs. 6,92,330 imposed under Section 271(1)(c) of the Income Tax Act. The Assessing Officer (AO) imposed this penalty on the grounds that the assessee had filed inaccurate particulars of income. The CIT(A) upheld the penalty, asserting that the assessee had not fully and truly disclosed all facts related to the payment of remuneration to partners and other expenses. The CIT(A) reasoned that the assessee's claims were not substantiated with evidence, thus constituting concealment of income and furnishing inaccurate particulars.

2. Disallowance of Partners' Remuneration:
The assessee claimed a deduction of Rs. 1,35,00,000 as partners' remuneration. The AO disallowed this claim, stating that the remuneration was not in accordance with the partnership deed dated 20.06.2004, which only allowed remuneration for 285 days of the assessment year. The Tribunal upheld the disallowance to the extent of Rs. 16,00,000, noting that the allowable remuneration for 285 days was Rs. 1.19 crores, not Rs. 1.35 crores. The CIT(A) supported this view, emphasizing that the partnership deed did not specify the remuneration for the entire year, and thus, the claim for the period before 20.06.2004 was inadmissible. The assessee argued that the claim was made in good faith based on professional advice and that the disallowance should not attract a penalty.

3. Disallowance of Foreign Tour Expenses:
The AO disallowed foreign tour expenses amounting to Rs. 2,59,550, which included expenses on credit cards, food, local conveyance, and stay. The CIT(A) confirmed this disallowance, noting that the assessee failed to substantiate that these expenses were wholly and exclusively for business purposes. The assessee contended that these expenses were genuine business expenditures and that no penalty should be levied as the claim was made in good faith.

4. Disallowance of Club Membership and Subscription Expenses:
The AO disallowed Rs. 32,460 out of the claimed Rs. 51,635 for club membership and subscription expenses, citing that part of the expenses were personal and prepaid. The CIT(A) upheld this disallowance, stating that the assessee did not appeal this ground due to the petty amount involved. The assessee argued that these were genuine business expenses and that the penalty was unwarranted.

Tribunal's Decision:
The Tribunal found that the assessee had made a bona fide claim for the expenses, which were largely allowed, with only a small fraction disallowed. It held that the disallowance of expenses did not constitute concealment of income or furnishing inaccurate particulars. The Tribunal relied on the Supreme Court's decision in Reliance Petroproducts (P.) Ltd., which stated that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars. The Tribunal also cited the Bombay High Court's decision in Larsen & Toubro, which held that disallowance of a claim does not justify a penalty under Section 271(1)(c) if the claim was made in good faith.

Conclusion:
The Tribunal concluded that the assessee's claims were made in good faith and were supported by evidence. It held that the penalty under Section 271(1)(c) was not justified and deleted the penalty of Rs. 6,92,330. The appeal of the assessee was allowed, and the order was pronounced in the open court on 16th February 2016.

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