2019 (10) TMI 260 - HC - Income Tax

Penalty u/s 271(1)(c) - claiming an expenditure u/s 37 that was not incurred to earn the income in the relevant previous year - HELD THAT - In the case of Commissioner of Income Tax Vs. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT the Supreme Court observes that a mere making of claim, which is not sustainable in law, by itself, will not amount to furnish inaccurate particulars regarding the income. Therefore, mere making of a claim which is disallowed in quantum proceedings, cannot by itself be a ground to impose penalty under Section 271(1)(c) of the Act. The fact that the respondent assessee was following the above method since 1990-1991 till the subject Assessment Year and there was no dispute in respect thereof save for the Assessment Year 2006-07 and the subject assessment year. This fact itself would militate against imposition of any penalty upon the respondent on the ground of furnishing inaccurate particulars of income. The Tribunal correctly set aside the order passed by the Commissioner of Income Tax (Appeals) and directed the Assessing Officer to delete the penalty - Decided in favour of assessee.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal setting aside penalty imposed under Section 271(1)(c) of Income Tax Act, 1961 for claiming expenditure u/s 37 not incurred to earn income in relevant previous year.

Analysis:
1. The appellant Revenue challenged the order passed by the Income Tax Appellate Tribunal, which set aside the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal directed the Assessing Officer to delete the penalty of ?1,19,31,643 imposed on the respondent for claiming an expenditure not incurred to earn income in the relevant previous year for Assessment Year 2007-08.

2. The respondent, engaged in building and construction activities, filed the return of income for Assessment Year 2007-08, using the Project Completion Method to calculate business income. The Assessing Officer disallowed ?3,54,47,542 claimed towards advertisement and sales promotion expenses, leading to penalty proceedings. The Assessing Officer held the respondent guilty of filing inaccurate particulars of income under Section 271(1)(c) and levied a penalty of ?1,19,31,643, representing 100% of the tax evaded.

3. The appellant raised a substantial question of law regarding whether claiming an expenditure not incurred to earn income in the relevant previous year amounts to furnishing inaccurate particulars of income under Section 271(1)(c) of the Act. The Tribunal allowed the respondent's appeal, considering the consistent method of claiming expenses since 1990-91, except for a dispute in the Assessment Year 2006-07.

4. The Tribunal noted that the mere making of a claim, even if not sustainable in law, does not necessarily constitute furnishing inaccurate particulars of income. Citing the case of Commissioner of Income Tax Vs. Reliance Petroproducts Pvt. Ltd., the Tribunal emphasized that a disallowed claim in quantum proceedings does not automatically warrant a penalty under Section 271(1)(c) of the Act. The Tribunal found no error in applying this principle to the present case.

5. The Tribunal's decision was based on the respondent's consistent practice of claiming expenses, the absence of disputes until recent years, and the legal precedent regarding the imposition of penalties for inaccurate particulars of income. Consequently, the appeal was dismissed as it did not raise any substantial question of law, affirming the Tribunal's decision to set aside the penalty imposed on the respondent.