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2019 (4) TMI 704 - AT - Income TaxPenalty u/s 271(1)(c) - Defective notice - 50% disallowance of Sales Promotion expenses - quantum proceedings qua addition of on account of disallowance of Sale Promotion expenses is pending before High Court - HELD THAT - we are of the considered view that in the instant case, not only the notice issued to the assessee u/s 274 read with section 271(1)(c) is defective but AO has not even made himself satisfied at the time of making disallowance / addition in assessment order if the assessee has furnished inaccurate particulars of income or has concealed particulars of his income rather to be on the safer side he has invoked both the limbs of section 271(1). In the instant case also assessee claimed sale promotion expenses which have been disallowed by the AO as well as Ld. CIT(A) specifically on the ground that the assessee has failed to furnish the supporting details to sustain its claim. But at no point of time AO has declared the claim as bogus rather observed that expenses incurred on boarding and lodging and traveling of doctors are neither business expenses nor ethical in natures. We are of the considered view that mere disallowance of sale promotion expenses claimed by the assessee does not amount to concealment of income or furnishing of inaccurate particulars of income and as such penalty cannot be levied. Further more when it is not in dispute that the question as to disallowance of 50% of expenditure claimed by the assessee under the head Sale Promotion expenses is pending adjudication before the Hon ble High Court. So, when, the question of disallowance of sale promotion expenses is debatable one penalty cannot be imposed. in view of what has been discussed above, the case of Sundaram Finance Ltd. 2018 (5) TMI 259 - MADRAS HIGH COURT and other decision, as relied upon by ld. DR for the Revenue are not applicable to the facts and circumstances of the case. However, decision rendered by Hon ble Apex Court in CIT vs. SSA s Emerala Meadows 2016 (8) TMI 1145 - SUPREME COURT and Hon ble Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT are applicable to instant case. In view of discussion made in the preceding paras AO/CIT(A) have erred in levying /confirming the penalty in this case which is not sustainable in the eyes of law. Consequently penalty stands deleted
Issues Involved:
1. Legality of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of the show cause notice issued under Section 274 read with Section 271(1)(c). 3. Whether the assessee concealed particulars of income or furnished inaccurate particulars of such income. 4. Impact of pending quantum proceedings on the penalty. 5. Application of judicial precedents on the validity of the penalty. Detailed Analysis: 1. Legality of the Penalty Order under Section 271(1)(c): The assessee challenged the penalty order of ?15,50,224/- under Section 271(1)(c) on the grounds that the penalty was confirmed without proper consideration of the material on record. The penalty was levied for disallowance of sales promotion expenses amounting to ?45,60,824/-. The assessee argued that the expenditures were supported by bills, vouchers, and most payments were made through banking channels, asserting no deliberate concealment of income. 2. Validity of the Show Cause Notice: The assessee raised a legal ground challenging the show cause notice issued under Section 274 read with Section 271(1)(c), arguing it was general in nature and did not specify the charge of penalty. The Tribunal allowed this ground, noting that the notice was vague and ambiguous, incorporating both limbs of Section 271(1)(c) without specifying whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of such income." 3. Concealment of Income or Furnishing Inaccurate Particulars: The Tribunal examined whether the assessee had concealed particulars of income or furnished inaccurate particulars. The assessee contended that the penalty proceedings were initiated without the Assessing Officer (AO) satisfying himself regarding the specific charge. The Tribunal found that the AO had not made a clear determination at the time of assessment or in the penalty order, which limb of Section 271(1)(c) was applicable, indicating non-application of mind. 4. Impact of Pending Quantum Proceedings: The Tribunal noted that the quantum proceedings concerning the disallowance of sales promotion expenses were pending before the Hon'ble High Court. The Tribunal agreed with the assessee's argument that penalty could not be levied while the quantum proceedings were unresolved, as the disallowance was still under judicial scrutiny. 5. Application of Judicial Precedents: The Tribunal relied on judicial precedents, including the Hon'ble Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory and the Hon'ble Supreme Court's decision in CIT vs. SSA’s Emerala Meadows, which held that penalty notices must specifically state the charge. The Tribunal found that the AO's notice did not meet this requirement, rendering the penalty unsustainable. The Tribunal also referred to the Hon'ble Delhi High Court's decision in PR. CIT-8 vs. SAMTEL INDIA LTD., which held that mere disallowance of a claim does not amount to concealment or furnishing inaccurate particulars, further supporting the assessee's case. Conclusion: The Tribunal concluded that the penalty order was not sustainable due to the defective notice and lack of clear determination by the AO regarding the specific charge under Section 271(1)(c). The Tribunal allowed the assessee's appeal, deleting the penalty of ?15,50,224/-. The order was pronounced in open court on April 10, 2019.
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