2014 (5) TMI 812 - AT - Income Tax

Tribunal revokes penalty under Income Tax Act, citing lack of evidence, distinguishes penalty from assessment.

Trans Asia Consultant Pvt. Ltd. Versus Asstt. Commissioner of Income Tax

The Tribunal allowed the assessee's appeal, setting aside the penalty order imposed under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal ... Penalty u/s 271(1)(c) of the Act – Disallowance u/s 14A of the Act – Interest on delayed payment – Held that:- The authorities have not recorded any finding that the explanation offered by the assessee before the AO was found to be false – Following COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] – where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty u/s 271(1)(c) - A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee - Such a claim made in the return cannot amount to furnishing inaccurate particulars - the sole ground of the assessee is allowed and the penalty order as well as order is set aside – Decided in favour of Assessee. Issues Involved:1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Allegation of furnishing inaccurate particulars of income and concealing particulars of income.3. Validity of the explanation provided by the assessee.4. Applicability of judicial precedents and legal principles in penalty proceedings.Issue-wise Detailed Analysis:1. Imposition of Penalty under Section 271(1)(c):The appeal concerns the imposition of a penalty of Rs. 2,70,832 under Section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer (AO) had initiated penalty proceedings after enhancing the assessee's income by disallowing Rs. 7,91,804 under Section 14A and Rs. 4997 as interest on delayed payment. The AO's basis for the penalty was that the assessee had either concealed particulars of income or furnished inaccurate particulars, thereby fulfilling the conditions for imposing a penalty under Section 271(1)(c).2. Allegation of Furnishing Inaccurate Particulars of Income and Concealing Particulars of Income:The AO argued that the assessee's claim of expenses was incorrect and could not be substantiated during the assessment proceedings. The AO cited the case of CIT Vs. Roadmaster Industries of India Ltd., emphasizing that the burden of proof lies on the assessee to substantiate their claims. The AO also referred to the Supreme Court judgment in Union of India Vs. Dharmendra Textiles Processors, asserting that penalty under Section 271(1)(c) is a civil liability and does not require willful concealment.3. Validity of the Explanation Provided by the Assessee:The assessee contended that the disallowance under Section 14A and the interest on delayed payment were based on details provided with the return of income. The assessee did not appeal against the disallowance to avoid litigation costs and believed no penalty would be imposed. The assessee relied on the Supreme Court decision in Price Water Coopers P. Ltd. vs C.I.T., which held that penalties are not justified for inadvertent errors without intent to conceal income.4. Applicability of Judicial Precedents and Legal Principles in Penalty Proceedings:The Tribunal considered various judicial precedents, including decisions from ITAT Delhi and Amritsar Benches, which held that penalties under Section 271(1)(c) are not warranted if the disallowance is based on details provided by the assessee and there is no concealment of income. In particular, the Tribunal referenced the Supreme Court decision in Reliance Petroproducts Pvt. Ltd., which stated that mere disallowance of a claim does not amount to furnishing inaccurate particulars of income.Conclusion:The Tribunal observed that the disallowances made by the AO were based on material already provided by the assessee and there was no finding that the assessee's explanation was false. The Tribunal noted that penalty proceedings are distinct from assessment proceedings and require fresh consideration of all facts and circumstances. The Tribunal concluded that the assessee's conduct did not warrant the imposition of a penalty under Section 271(1)(c) and allowed the appeal, setting aside the penalty order.Order:The appeal of the assessee is allowed, and the penalty order is set aside. The Tribunal pronounced the order in the open court on 06.05.2014.