2019 (5) TMI 1270 - AT - Income Tax

Levy of penalty u/s 271(1)(C) - addition of the motor car expenses depreciation and interest on such loan - HELD THAT - There is no such disallowance of such depreciation and motor car expenses and interest on loan from AY 2010-11 to 2013-14. Although the vehicle was registered in the name of the Director of the assessee Company however the expenses were incurred by the assessee company itself and the vehicle was used for the business of the assessee Company. All particulars were made available before the A.O and there was no such concealment. In the case of CIT (A) Vs. Reliance Petro Products Pvt. Ltd. . 2010 (3) TMI 80 - SUPREME COURT has held that merely because the assessee has claimed the expenditure which claim was not acceptable or was not accepted by the revenue that by itself could not attract the penalty u/s 271(1)(c) - merely because the assessee in the instant case has accepted the disallowance during the course of assessment proceedings that by itself will not preclude the assessee from taking an alternate argument before the Tribunal during penalty proceedings. Since full particulars are available before the A.O during the course of assessment proceedings therefore penalty u/s 271(1)(c) in my opinion is not attracted on motor car expenses and depreciation Disallowance of ad-hoc expenses of the business promotion expenditure - Addition is on ad-hoc basis. As held in various decisions that penalty u/s 271(1)(c) is not sustainable on ad-hoc disallowance of expenses. It is not a fit case for levy of penalty u/s 271(1) (c) - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(C) for disallowed expenses.

Analysis:
The appeal was against the penalty imposed by the Assessing Officer (A.O) and upheld by the CIT(A) for disallowed expenses. The assessee, a Private Limited Company engaged in the jewelry business, had debited certain expenses related to a car not registered in the company's name and business promotion expenses. The A.O disallowed these expenses and initiated penalty proceedings under section 271(1)(C) of the Income Tax Act. The penalty was levied based on the decision of the Delhi High Court and the assessee did not challenge the additions during assessment. However, before the CIT(A), the assessee argued that the expenses were legitimate and that penalty cannot be levied on estimated additions. References were made to various court decisions to support the case.

The CIT(A) upheld the penalty, finding the arguments of the assessee unsatisfactory. The Tribunal considered the arguments of both sides and reviewed the material on record. It noted that the assessee had agreed to the addition of certain expenses during the assessment, but had provided details about the business takeover and usage of the vehicle for business purposes. The Tribunal cited the Supreme Court's decision that mere disallowance of a claim does not automatically attract penalty under section 271(1)(C). It concluded that the penalty was not justified for the motor car expenses and depreciation. Regarding the ad-hoc disallowance of business promotion expenses, the Tribunal held that penalties are not sustainable on such basis. Therefore, the Tribunal allowed the appeal, stating it was not a fit case for the penalty under section 271(1)(C) of the Income Tax Act.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and setting aside the penalty. The decision was made on 21st May 2019 by the Appellate Tribunal ITAT Delhi, with detailed reasoning provided for each issue raised in the appeal.