2014 (10) TMI 823 - AT - Income Tax

Appeal allowed as allowances were reimbursements, not income; penalty unjustified.

The Tribunal allowed the appeal of the assessee, finding that the penalty imposed for treating certain allowances as income was not justified. The ... Levy of penalty under section 271(1)(c) - Non inclusion of hospitality allowance and telephone allowance - Held that:- A perusal of the assessment order clearly shows that the Assessing Officer has treated the amount of ₹ 5,000 per month towards hospitality allowance reimbursement and ₹ 1,000 per month towards telephone allowance reimbursement as the salary income of the assessee. Admittedly the letter dated September 6, 2010, which has also been extracted by the Assessing Officer clearly shows that the amounts are only reimbursements. The amounts having been shown as reimbursement the same cannot be treated as income in the hands of the assessee especially under the head 'Salary'. Consequently, non-inclusion of the same in the assessee's return of income could not be treated as concealment of income. In any case, the assessee is not in appeal against the addition made in the assessment order, however, that would not bar the assessee from raising its plea of reasonable cause in the penalty proceedings. A perusal of the letter issued by the Orissa Engineering College clearly mentioning the same to be reimbursement, the same cannot be treated as the salaried income of the assessee, which has been concealed by the assessee. In these circumstances, we are of the view that the penalty levied by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) is unsustainable and consequently deleted. - Decided in favour of assessee. Issues:Appeal against levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2005-06 based on the treatment of certain allowances as income.Analysis:The appeal was filed by the assessee against the order confirming the penalty under section 271(1)(c) of the Income-tax Act, 1961. The assessee, represented by an authorised representative, argued that certain allowances were reimbursements and not income. The Assessing Officer had treated these amounts as income. The assessee provided a letter from the employer specifying that the allowances were reimbursements. The Departmental representative supported the Assessing Officer's decision.Upon reviewing the submissions, the Tribunal noted that the Assessing Officer had considered the allowances as part of the assessee's salary income. However, the letter from the employer clearly stated that the amounts were reimbursements, not income. As the allowances were shown as reimbursements, they could not be treated as income under the salary head. The Tribunal found that the non-inclusion of these amounts in the return could not be seen as concealment of income. While the assessee did not appeal against the addition in the assessment order, they were allowed to present a reasonable cause in the penalty proceedings. Given the clear clarification in the letter from the employer, stating the amounts were reimbursements, the penalty levied was deemed unsustainable and subsequently deleted.In conclusion, the Tribunal allowed the appeal of the assessee, highlighting that the penalty imposed for the treatment of the allowances as income was not justified based on the evidence provided, leading to the deletion of the penalty.