2016 (5) TMI 1252 - AT - Income Tax

Penalty u/s 271(1)(c ) - Held that - Penalty u/s 271(1)(c ) cannot be imposed in case where no specific charges are mentioned in the penalty notice. - Decided in favour of assessee

Summary

Issues involved:
1. Sustaining penalty under section 271(1)(c) of the Income Tax Act 1961 for disallowing expenditure claimed by the assessee.
2. Ignoring established law that disallowance of expenditure does not imply concealment of income.
3. Disregarding the nature of expenses incurred by the assessee as a trading company during a lull in business.

Analysis:

Issue 1: Sustaining penalty under section 271(1)(c)
The assessee, a company, filed its return declaring income, which was later assessed by the AO disallowing a business loss. The AO disallowed the expenditure claimed by the assessee, stating lack of income against which the expenditure could be claimed. The First Appellate Authority upheld this decision, leading to the imposition of a penalty under section 271(1)(c). However, the Tribunal found that the genuineness of the expenditure was not in question, and the dispute was whether it should be allowed under 'income from business' or apportioned between different income heads. The Tribunal, citing established legal principles, canceled the penalty, emphasizing that no concealment or inaccurate particulars were involved.

Issue 2: Ignoring established law on concealment
The Tribunal highlighted that the settled law indicates that disallowance of expenditure does not automatically imply concealment of income. In this case, the assessee had various sources of income, and the nature of the expenses incurred during a lull in business did not indicate concealment. The Tribunal referred to the case law of CIT vs. Reliance Petro Products Ltd. to support its decision to cancel the penalty under section 271(1)(c).

Issue 3: Nature of expenses incurred by the assessee
The Tribunal noted that the assessee, being a trading company, had various sources of income, including rent, interest, dividend, and capital gains. The Tribunal opined that the issue of whether the expenditure should be allowed under 'income from business' or apportioned was debatable. Citing the principles laid down by the Hon'ble Karnataka High Court in CIT vs. Manjunatha Cotton Ginning Factory, the Tribunal emphasized that penalty proceedings should be clear and specific, and in this case, the penalty notice did not specify the charge clearly, leading to the cancellation of the penalty.

In conclusion, the Tribunal allowed the appeal of the assessee, canceling the penalty levied under section 271(1)(c) of the Income Tax Act 1961 based on the detailed analysis of the issues involved and relevant legal precedents.