2017 (2) TMI 1081 - AT - Income Tax

Appeal Dismissed on Expense Disallowance, Penalty Deleted for No Concealment

The ITAT dismissed the appeal regarding the disallowance of expenses in the quantum assessment for AY 2009-10, as the appellant conceded to the ... Disallowance of expenditure attributable to exempt income - application of section 14A read with Rule 8D - penalty under 271(1)(c) for concealment of income - mere disallowance not amounting to concealmentDisallowance of expenditure attributable to exempt income - application of section 14A read with Rule 8D - Assessee's challenge to disallowance of expenses of Rs. 55,27,162/- - HELD THAT: - The assessee claimed various administrative, financial expenses and depreciation which the Assessing Officer disallowed as being attributable to exempt dividend income. On appeal before the Tribunal the assessee's authorized representative conceded the disallowance and, without prejudice to other contentions, agreed that the claim need not be pressed. In view of that concession the Tribunal treated the appeal as not pressed and dismissed it, while noting that the concession in the assessment appeal would not operate as an estoppel in penalty proceedings. [Paras 5]Appeal against the disallowance dismissed as not pressed following the assessee's concession.Penalty under 271(1)(c) for concealment of income - mere disallowance not amounting to concealment - Legitimacy of penalty under section 271(1)(c) imposed for the claimed disallowance - HELD THAT: - The Assessing Officer imposed penalty treating the disallowed expenditure as a false claim amounting to willful concealment. The Tribunal examined the material and found that the assessee had merely claimed deductions which were subsequently disallowed; no new material was brought on record by the Revenue showing that any part of assessable income was concealed or that inaccurate particulars were furnished. It reiterated the settled principle that mere disallowance of a claim does not automatically translate into concealment of income warranting penalty. Applying that principle to the facts, the Tribunal concluded there was no evidence of concealment or intentional misstatement and therefore the penalty was not sustainable. [Paras 9, 10]Penalty under section 271(1)(c) deleted.Final Conclusion: For AY 2009-10 the appeal against the disallowance of expenses was dismissed as not pressed pursuant to the assessee's concession, while the penalty under section 271(1)(c) imposed for the same disallowance was deleted on the ground that mere disallowance did not amount to concealment of income. Issues:1. Disallowance of expenses in quantum assessment for AY 2009-10.2. Penalty levied under section 271(1)(c) of the Income Tax Act.Issue 1: Disallowance of Expenses in Quantum Assessment:The appellant, engaged in trading and investment in Share and Securities, filed a return of income for AY 2009-10 with a total loss of &8377; 63,17,307. The Assessing Officer disallowed expenses of &8377; 55,27,162, attributing them to earning exempt income. The disallowance was confirmed by the CIT(A), leading to the appeal before the ITAT. The appellant argued that the disallowance was not in accordance with section 14A read with Rule 8D. The Revenue contended that the expenses were not allowable as the appellant did not engage in any business activity during the relevant year. Eventually, the appellant conceded to the disallowance without prejudice, and the ITAT dismissed the appeal, clarifying that the decision does not affect the penalty proceedings.Issue 2: Penalty under Section 271(1)(c) of the Income Tax Act:The penalty was levied on the disallowed expenses of &8377; 55,27,162, treating them as concealment of income. The AO concluded that the appellant willfully sought to evade tax and imposed a penalty of &8377; 17,08,000, representing 100% of the tax sought to be evaded. The CIT(A) upheld the penalty, emphasizing that the appellant falsely claimed expenses despite no business activity. However, the ITAT independently analyzed the case and noted that the disallowance was due to expenses falling under a different income head, not concealment. The ITAT highlighted that a mere disallowance of expenses does not automatically lead to a penalty under section 271(1)(c). It was observed that there was no concealment of income by the appellant, leading to the deletion of the penalty.In conclusion, the ITAT dismissed the appeal related to quantum assessment and allowed the appeal concerning the penalty, emphasizing the distinction between assessment and penalty proceedings. The judgment provided a detailed analysis of the disallowance of expenses and the imposition of the penalty, ensuring a fair and just decision based on the facts and legal provisions presented during the case proceedings.