2017 (2) TMI 28 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowance of expenses of foreign Travel expenses and inter city travel expenses - distinction between set of facts not proved and facts disproved and facts proved - Held that - Inquiry must proceed from the stage the alleged disclosure has taken place and not stop at that stage and close the inquiry at the threshold on the abstract principle that mere rejection of explanation does not result into levy of penalty. In the present case also the Revenue has no where proved the allegation of concealment despite explanation offered by the assessee. The AO has made disallowance of foreign travel expenses and local travel expenses merely on the basis of non-business purposes without making any enquiry. The assessee produced complete details i.e. the bills and vouchers relating to expenses incurred on foreign travelling and local travelling and claimed by the assessee for business purposes. The actual position in law is that merely because the assessee s addition has been confirmed, that cannot automatically bring in levy of penalty for concealment. If the assessee offers an explanation, the Revenue authorities have to consider the acceptability of the explanation and pass necessary orders. In the present case, the Revenue has not rejected the explanation of the assessee and merely levied the penalty on the basis that the expenses are for non-business purposes. In term of the above discussion and facts of the case, we delete the penalty - Decided in favour of assessee

Summary

Issues:
1. Disallowance of foreign travel expenses and inter city travel expenses.
2. Levy of penalty under section 271(1)(c) for concealment of income.

Analysis:
1. The only issue in this appeal is the confirmation of penalty by CIT(A) under section 271(1)(c) of the Income Tax Act for disallowance of expenses of foreign and inter city travel. The assessee claimed these expenses for business purposes, but the AO disallowed them as no evidence was provided to substantiate the business purpose. The Tribunal upheld the disallowance stating that the assessee failed to prove the expenses were incurred wholly and exclusively for business, leading to the confirmation of the penalty.

2. The penalty proceedings under section 271(1)(c) were initiated by the AO for concealment of income due to disallowance of travel expenses. The CIT(A) confirmed the penalty, emphasizing the lack of documentary evidence to support the business purpose of the expenses. The Tribunal observed that while the expenditure was not in doubt, the purpose (business or personal) was questioned. The assessee provided complete details and claimed the expenses were solely for business. The Tribunal noted that the assessee disclosed the expenses but failed to prove their business nature. The Tribunal highlighted that non-satisfactory explanations do not amount to proof of falsity, and the Revenue did not establish concealment despite the explanation offered. Consequently, the Tribunal deleted the penalty and allowed the assessee's appeal.

3. The Tribunal emphasized that the mere fact of disallowance does not automatically warrant a penalty for concealment. The Revenue authorities must consider the acceptability of the explanation provided by the assessee. In this case, the Revenue did not reject the explanation but levied the penalty based on the assumption of non-business purposes. The Tribunal concluded that the Revenue did not prove concealment despite the explanation offered by the assessee, leading to the deletion of the penalty and the allowance of the assessee's appeal.