2017 (11) TMI 210 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - proof of furnishing of inaccurate particulars of income - disallowance of foreign travelling expenses - Held that - The penalty order is woefully silent on the issue as to how this satisfaction of furnishing of inaccurate was arrived at. The quantum addition on which the penalty has been imposed pertains to disallowance out of foreign travel expenses but the Ld. CIT (A) has not examined the issue in detail but has simply confirmed the penalty by relying on the findings of the AO and the Ld. CIT (A) in the quantum proceedings. There is no finding by the authorities below on the issue as to how the furnishing of inaccurate particulars has come to be established so as to warrant the imposition of penalty. Thus, it is apparent that the penalty has been imposed as an automatic outcome of the confirmation of the quantum addition. Considering all the impugned disallowance does not invite the provisions of Section 271(1)(c) of the Act - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2008-09.

Analysis:
1. Quantum Addition Disallowance: The case involved an assessment under section 153A of the Income Tax Act, 1961, resulting in an addition of ?10,63,807 for disallowance of foreign traveling expenses. The assessee's appeal against this quantum addition was dismissed by the Ld. CIT (Appeals).

2. Penalty Proceedings: Penalty proceedings were initiated against the assessee, who argued that the foreign trips were business-related and not for pleasure. The assessee contended that all expenses were genuine and no inaccurate particulars were furnished. Despite this, a penalty of ?3,28,716 was imposed by the assessing officer and confirmed by the Ld. CIT (Appeals).

3. Legal Arguments: The appellant argued that the mere disallowance of an expense does not automatically warrant a penalty under section 271(1)(c) of the Act. It was emphasized that all relevant details were provided during assessment, and there was no intention to conceal income or furnish inaccurate particulars.

4. Departmental Submission: The department argued that the disallowed expenses were a deliberate attempt to reduce taxable income, justifying the penalty imposition. The Ld. CIT (Appeals) upheld this view, leading to the current appeal before the ITAT.

5. Judicial Analysis: The ITAT considered various legal precedents emphasizing that penalty cannot be imposed solely based on the quantum addition sustained in assessment proceedings. The burden of proof lies with the department to show concealment or inaccurate particulars. The ITAT highlighted the distinction between assessment and penalty proceedings, emphasizing the need for fresh consideration in penalty cases.

6. Decision: The ITAT found that the penalty order lacked a proper basis for establishing inaccurate particulars, indicating an automatic imposition based on the quantum addition confirmation. Consequently, the ITAT set aside the Ld. CIT (Appeals) order and directed the AO to delete the penalty entirely, ruling in favor of the appellant.

In conclusion, the ITAT allowed the appeal, emphasizing the necessity for a separate and thorough assessment in penalty proceedings, distinct from the quantum addition considerations. The judgment highlighted the importance of establishing deliberate default for penalty imposition under section 271(1)(c) of the Income Tax Act, 1961.