2024 (9) TMI 643 - AT - Income Tax

Penalty u/s 271(1)(c) - estimated GP addition - HELD THAT - As following the decision passed in the case of J. R. Enterprises 2018 (10) TMI 2037 - ITAT DELHI direct the AO to delete the penalty levied u/s 271(1)(c) the IT Act on the basis of estimated GP addition Disallowance of proportionate interest expenses the disallowance on account of guest house expenses being capital in nature - It is true that both the above disallowances were confirmed by LD CIT(A) also sustained by the ITAT. But, we are unable to accept the contention of LD CIT(A) that mere addition / disallowance warrant the imposition of penalty u/s 271(1)(c) - In this regard, the contention of AR is that the non-charging of interest on certain loans may result into a disallowance out of interest paid to others but the assessee cannot be said to have furnished inaccurate particulars of his income or concealed any income, as all the facts were disclosed truly fully. The expenditure towards professional fee of architect for guest house renovation was treated as capital expenditure and disallowed accordingly, but in a situation like this, question of levy of penalty u/s 271(1)(c) does not arise - In this regard, LD AR again relied on the judgement passed in the case of CIT vs. Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT wherein, it was held that a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of income by the assessee. We find force in the argument of the assessee on this count and, accordingly, we direct the Assessing Officer to delete the penalty u/s 271(1)(c) of the IT Act. Thus, the grounds of appeal filed by the assessee are allowed.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act.
2. Gross Profit addition and penalty imposition.
3. Disallowance of interest paid and guest house expenses leading to penalty.
4. General grounds challenging penalty imposition without proper justification.

Issue 1: Confirmation of penalty under section 271(1)(c) of the Income Tax Act

The appeal was filed against the order confirming a penalty of Rs. 62,95,800 under section 271(1)(c) of the Income Tax Act for the assessment year 2010-11. The appellant contested the penalty imposition on various grounds, including the contention that no penalty could be levied when the income was determined on an estimated basis. The appellant relied on a decision by a Coordinate Bench of the Tribunal in a similar case where the penalty was deleted due to the estimated nature of the additions. The Tribunal, following the precedent, directed the Assessing Officer to delete the penalty imposed based on an estimated Gross Profit addition of Rs. 1,76,53,871.

Issue 2: Gross Profit addition and penalty imposition

The Assessing Officer made additions, including a Gross Profit addition, based on a special audit report. The CIT(A) directed the Assessing Officer to make a higher Gross Profit addition, which was further reduced by the ITAT. The penalty was imposed based on this Gross Profit addition, which the appellant argued was purely based on estimation. Relying on the decision in a similar case, the Tribunal directed the deletion of the penalty imposed on the estimated Gross Profit addition.

Issue 3: Disallowance of interest paid and guest house expenses leading to penalty

The disallowance of interest paid and guest house expenses, confirmed by the CIT(A) and ITAT, also led to the imposition of a penalty under section 271(1)(c) of the Income Tax Act. However, the Tribunal found that the mere addition or disallowance does not necessarily warrant the imposition of a penalty. The appellant argued that all facts were disclosed truly and fully, and relied on a Supreme Court judgment to support their case. The Tribunal agreed with the appellant's argument and directed the Assessing Officer to delete the penalty imposed on these grounds.

Issue 4: General grounds challenging penalty imposition without proper justification

The appellant raised general grounds challenging the imposition of the penalty without proper justification, including the contention that penalty proceedings are independent of assessment proceedings. The Tribunal found merit in the appellant's arguments and directed the deletion of the penalty imposed under section 271(1)(c) of the Income Tax Act. The appeal filed by the assessee was allowed, and the penalty was set aside.

In conclusion, the Tribunal ruled in favor of the appellant, directing the deletion of the penalty imposed under section 271(1)(c) of the Income Tax Act based on estimated additions and disallowances. The Tribunal emphasized the importance of disclosing facts truly and fully to avoid penalty imposition, even in cases of additions or disallowances.