2017 (2) TMI 1081 - AT - Income Tax

Penalty u/s 271(1)(c) - Disallowance u/s 14A r.w. Rule 8D - assessee while making alternative submission conceded the disallowance as the dividend income of the assessee falls under one head of income and the expenses claimed by the assessee were related with the another head of the income - Held that - We have seen that the assessee has merely claimed the expenses which were not allowable under one head of the income. There is no concealment of income or furnishing of inaccurate particular. It is settled law that in all cases mere disallowance of claim of expenses would not automatically lead to levy of penalty u/s 271(1)(c) of the Act. We may also refer that penalty proceeding are distinct from assessment proceeding. We may note that assessee has made such a claim which was ultimately not allowed. The AO has not brought any new material which may suggest that assessee has concealed any part of his assessable income. The AO has not brought on record as to what facts were unearthed by him which may suggest that the assessee concealed its income. Thus, as per our considered opinion, there was no concealment of income on the part of assessee. Thus, the appeal of the assessee and the penalty levied by AO is deleted. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of expenses in quantum assessment for AY 2009-10.
2. Penalty levied under section 271(1)(c) of the Income Tax Act.

Issue 1: Disallowance of Expenses in Quantum Assessment:

The appellant, engaged in trading and investment in Share and Securities, filed a return of income for AY 2009-10 with a total loss of &8377; 63,17,307. The Assessing Officer disallowed expenses of &8377; 55,27,162, attributing them to earning exempt income. The disallowance was confirmed by the CIT(A), leading to the appeal before the ITAT. The appellant argued that the disallowance was not in accordance with section 14A read with Rule 8D. The Revenue contended that the expenses were not allowable as the appellant did not engage in any business activity during the relevant year. Eventually, the appellant conceded to the disallowance without prejudice, and the ITAT dismissed the appeal, clarifying that the decision does not affect the penalty proceedings.

Issue 2: Penalty under Section 271(1)(c) of the Income Tax Act:

The penalty was levied on the disallowed expenses of &8377; 55,27,162, treating them as concealment of income. The AO concluded that the appellant willfully sought to evade tax and imposed a penalty of &8377; 17,08,000, representing 100% of the tax sought to be evaded. The CIT(A) upheld the penalty, emphasizing that the appellant falsely claimed expenses despite no business activity. However, the ITAT independently analyzed the case and noted that the disallowance was due to expenses falling under a different income head, not concealment. The ITAT highlighted that a mere disallowance of expenses does not automatically lead to a penalty under section 271(1)(c). It was observed that there was no concealment of income by the appellant, leading to the deletion of the penalty.

In conclusion, the ITAT dismissed the appeal related to quantum assessment and allowed the appeal concerning the penalty, emphasizing the distinction between assessment and penalty proceedings. The judgment provided a detailed analysis of the disallowance of expenses and the imposition of the penalty, ensuring a fair and just decision based on the facts and legal provisions presented during the case proceedings.