2016 (6) TMI 1035 - HC - Income Tax

Penalty u/s 271(1)(c) - disallowance of expenditure under Section 40(a)(ia) - Held that - The assessee had made a claim of deduction in the return of income. No finding has been recorded by the authorities below that the claim made by the assessee is malafide. It has been categorically recorded by the Tribunal after examining the entire material on record that the CIT(A) had rightly cancelled the penalty against the assessee. It was further recorded that the assessee made a bonafide claim of deduction of the expenditure and even though it was not acceptable to the revenue would not lead to the conclusion that the assessee had concealed the particulars of income or filed inaccurate particulars of income. In CIT vs. Reliance Petroproducts (P) Limited, (2010 (3) TMI 80 - SUPREME COURT ) held that under section 271(1)(c) of the Act, there has to be concealment of income of the assessee or the assessee must have furnished inaccurate particulars of his income. In the present case, the claim made by the assessee has not been shown to be suffering from any of these conditions. In the absence of any finding recorded by the CIT(A) or the Tribunal with regard to the claim of the assessee that it was malafide, there is no error in cancelling the penalty imposed by the Assessing Officer. - Decided against revenue

Summary

Issues:
1. Challenge to the cancellation of penalty on disallowance of expenditure under Section 40(a)(ia) of the Income Tax Act, 1961.

Analysis:
The appeal before the High Court pertains to the cancellation of penalty imposed by the Assessing Officer on various additions made during the assessment year 2006-07. The primary challenge was against the cancellation of penalty on the disallowance of expenditure under Section 40(a)(ia) of the Act. The Tribunal had upheld the decision of the Commissioner of Income Tax (Appeals) in canceling the penalty. The Tribunal found that the assessee had disclosed all relevant facts without concealing any income, and the claim made was bonafide, even though it was not accepted by the revenue authorities. The High Court noted that there was no allegation of concealment or furnishing inaccurate particulars of income by the assessee. The Tribunal's decision was supported by a precedent where it was held that in the absence of specific conditions under Section 271(1)(c) being met, the revenue cannot impose a penalty.

The High Court referred to the Supreme Court judgment in CIT vs. Reliance Petroproducts (P) Limited, (2010) 322 ITR 158, emphasizing that for a penalty under Section 271(1)(c) to be imposed, there must be concealment of income or furnishing of inaccurate particulars of income by the assessee. Since no malafide intent was established in the present case, the cancellation of penalty was justified. The Court also distinguished the judgment of the Delhi High Court in CIT vs. Zoom Communication (P) Limited, (2010) 327 ITR 510, stating that it dealt with a different scenario involving malafide intention, unlike the current case where no such intention was proven.

In conclusion, the High Court dismissed the appeal by the revenue, stating that no substantial question of law arose from the case. The decision to cancel the penalty on the disallowance of expenditure under Section 40(a)(ia) was upheld based on the bonafide claim made by the assessee and the absence of any evidence of concealment or furnishing inaccurate particulars of income.