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2019 (5) TMI 291 - AT - Income TaxPenalty levied u/s.271(1)(c) - disallowance u/s.14A - HELD THAT - Penalty has been imposed on making disallowance of certain expenses. But for that, there is nothing on record to show that the assessee lodged bogus claims in respect of these expenses. That apart, the expenses were claimed by the assessee in a bona fide manner. The mere fact that the above disallowances have been made do not bring a case within the parameters set out in section 271(1)(c) of the Act. The Hon'ble Supreme Court in CIT VS. Reliance Petro Products Private Ltd. 2010 (3) TMI 80 - SUPREME COURT has held that a mere making of a claim which is not sustainable in law, by itself will not attract penalty 271(1)(c) of the Income-tax Act, when the assessee furnishes all the relevant particulars in his return which are not found to be inaccurate. There is no dearth of decisions holding that penalty under section 271(1)(c) cannot be imposed on disallowance of expenses, which were not otherwise bogus - See SHRI SAMSON PERINCHERY 2017 (1) TMI 1292 - BOMBAY HIGH COURT - Decided in favour of assessee.
Issues:
1. Penalty levied under section 271(1)(c) of the Income Tax Act, 1961. 2. Penalty imposed on disallowance made under section 14A of the Act. Issue 1: Penalty under section 271(1)(c) of the Income Tax Act: The appeal challenged the penalty imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1961. The crux of the grievance was the lack of clarity in specifying the limb for which the penalty was being imposed. The assessee argued that both the assessment order and penalty order did not clearly mention the specific grounds for the penalty. Citing judicial precedents, the assessee contended that the notice under section 274 read with 271(1)(c) must specify the exact grounds for penalty initiation. The tribunal noted that the penalty notice lacked clarity on the specific charge for which the penalty was levied, rendering the imposition of penalty void ab-initio. It was emphasized that the penalty order must be based on the grounds for which the penalty proceedings were initiated, ensuring the assessee has a fair opportunity to prepare a defense. Issue 2: Penalty on disallowance under section 14A of the Act: Regarding the penalty imposed on disallowance made under section 14A of the Act, the tribunal considered relevant case law and precedents. Referring to a specific case involving disallowance of expenses, the tribunal highlighted that penalty under section 271(1)(c) cannot be imposed solely based on disallowances if the expenses were not found to be bogus or lodged in bad faith. Citing the decision of the Hon'ble Supreme Court, it was established that making unsustainable claims alone does not attract penalty under the Act, especially when relevant particulars are accurately furnished. Relying on the directions of the Hon'ble Jurisdictional High Court and a decision of the Delhi Bench of the Tribunal, the tribunal set aside the penalty imposed on disallowance made under section 14A of the Act. Consequently, the tribunal directed the Assessing Officer to delete the penalty from the assessee's records. In conclusion, the tribunal allowed the appeal of the assessee, emphasizing the importance of clear specification of grounds for penalty imposition and highlighting that penalties should be based on valid grounds with fair notice to the assessee for adequate defense preparation.
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