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2018 (10) TMI 360 - AT - Income TaxPenalty proceedings u/s 271(1)(c) - preoperative expenses addition - Held that - A perusal of the orders shows that the contention of the Assessing Officer is incorrect that the business of the assessee had not commenced. It was only submitted before the Assessing Officer that it was the first year of incorporation of the company and the company had also sold samples of wooden flooring to one of the parties towards which an income of ₹ 82,932/- had been declared by the assessee. It is also seen that the AO has not doubted the genuineness of the expenses and the only ground for disallowing the expenditure was that in view of the Assessing Officer the expenses were in the nature of preoperative expenses. Further, it is seen that the Assessing Officer has imposed penalty for furnishing inaccurate particulars of income whereas on facts of the case, it is our considered opinion that all the information relevant to the impugned disallowances was before the Assessing Officer at the time of assessment proceedings and no case could have been made out by the AO for furnishing inaccurate particulars of income. - Decided against revenue.
Issues:
1. Allowability of expenses claimed by the assessee. 2. Imposition of penalty u/s 271(1)(c) for furnishing inaccurate particulars of income. Issue 1: Allowability of Expenses Claimed by the Assessee: The case involved an appeal filed by the Revenue against the order passed by the Ld. CIT (Appeals) for Assessment Year 2010-11. The Assessing Officer observed a significant difference between the income declared and the expenses claimed by the assessee. The Assessing Officer disallowed the expenses of ?66,29,006 claimed by the assessee, considering them as preoperative expenses due to the business operations not having commenced. The penalty proceedings u/s 271(1)(c) were initiated, and a penalty of ?20,47,864 was imposed. The Ld. CIT (A) deleted the penalty, leading to the department challenging this deletion before the ITAT. The department argued that the expenses were not allowable as they were preoperative in nature. However, the ITAT found that the business had commenced, as evidenced by the sale of samples of wooden flooring. The ITAT also noted that the Assessing Officer did not doubt the genuineness of the expenses. The ITAT further referenced the judgment of the Hon’ble Apex Court in Reliance Petroproducts Pvt. Ltd., emphasizing that for penalty u/s 271(1)(c), there must be a deliberate act of furnishing inaccurate particulars of income, which was not the case here. Consequently, the ITAT upheld the decision of the Ld. CIT (A) and dismissed the department's appeal. Issue 2: Imposition of Penalty u/s 271(1)(c) for Furnishing Inaccurate Particulars of Income: The penalty u/s 271(1)(c) was imposed on the assessee for furnishing inaccurate particulars of income. The department argued that the penalty was justified as the assessee had not appealed against the quantum addition made by the Assessing Officer. However, the ITAT found that all relevant information regarding the disallowed expenses was before the Assessing Officer during the assessment proceedings. Citing the judgment in Reliance Petroproducts Pvt. Ltd., the ITAT highlighted that furnishing inaccurate particulars required mens rea, which was not established in this case. The ITAT concluded that the penalty was not warranted as the assessee had not furnished incorrect or inaccurate details in the return. Therefore, the ITAT upheld the decision of the Ld. CIT (A) to delete the penalty, dismissing the department's appeal. In conclusion, the ITAT ruled in favor of the assessee, upholding the deletion of the penalty imposed under section 271(1)(c) and dismissing the department's appeal. The judgment emphasized the importance of establishing deliberate intent in furnishing inaccurate particulars of income for the imposition of penalties, as per the legal precedents set by the Hon’ble Apex Court.
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