2014 (1) TMI 431 - AT - Income Tax

Tribunal overturns penalty for disallowed expenses under Income Tax Act

The Tribunal overturned the penalty imposed by the Assessing Officer under section 271(1)(c) for disallowance of expenses claimed under section 57 of the ... Penalty u/s 271(1)(c) – The assessee has claimed expenditure comprising of bank charge, legal and professional expenses, telephone and trunkcall expenses, account writing charges and interest on bank O/D - These expenses were claimed as expenditure u/s 57 against the income earned from other sources - Held that:- The expenses do not have any direct nexus with the income shown under the head income from other sources - Following CIT vs. Reliance Petro Products [2010 (3) TMI 80 - SUPREME COURT] - Merely because the assessee has claimed the expenditure and the claim has not been accepted or was not acceptable to the Revenue by itself would not attract penalty u/s 271(1)(c) – Decided in favour of assessee. Issues:Penalty under section 271(1)(c) for inaccurate particulars and concealing income based on disallowed expenses under section 57.Analysis:The appeal in this case pertains to a penalty order passed by the A.C.I.T. against the assessee for disallowance of certain expenses claimed under section 57 of the Income Tax Act. The assessee, an individual with income from various sources, filed a return declaring total income. During scrutiny, the Assessing Officer disallowed aggregate expenditure of Rs. 1,88,247 claimed by the assessee, stating that the expenses lacked a direct relationship with the income earned. Consequently, a penalty under section 271(1)(c) was initiated, and the CIT(A) confirmed the penalty, emphasizing the necessity of a direct nexus between expenses claimed under section 57 and the income earned. The CIT(A) held that the appellant made a 'patently wrong claim' of expenses, justifying the penalty under section 271(1)(c).The appellant argued that no appeal was filed against the disallowance due to the small amount involved, and all expenses were bona fide claimed and disclosed in the return of income. The appellant contended that there was no concealment of income or facts, as all details were provided during assessment proceedings. Citing the decision in CIT vs. Reliance Petro Products Pvt. Ltd., the appellant argued that the mere disallowance of expenses does not imply filing inaccurate particulars of income. On the other hand, the Departmental Representative supported the penalty, asserting that the expenses were unrelated to income and that there was no evidence of bona fide mistake.The Tribunal considered the facts, noting the disallowed expenses and the absence of an appeal against the disallowance. Referring to the decision in CIT vs. Reliance Petro Products, the Tribunal emphasized that the mere rejection of an expenditure claim does not automatically attract penalty under section 271(1)(c). The Tribunal concluded that the appellant would not be liable for the penalty, directing its deletion based on the principles laid down by the Supreme Court. Consequently, the appeal of the assessee was allowed, overturning the penalty imposed by the Assessing Officer.