ITAT Revokes Penalty on Inaccurate Income Details

Late Purnima Bhandari through L/H Shri N.K. Dewan Versus DCIT, Circle-14 (2), New Delhi

Late Purnima Bhandari through L/H Shri N.K. Dewan Versus DCIT, Circle-14 (2), New Delhi - TMI Issues:
Penalty under section 271(1)(c) for filing inaccurate particulars of income - Long-term capital loss addition - Entertainment expenses disallowance.

Detailed Analysis:

Long-term Capital Loss Addition:
The appeal was against the penalty order for inaccurate income particulars for the assessment year 2010-11. The Assessing Officer added back a long-term capital loss of Rs. 66,94,673 to the business profit, resulting in an understatement of income. The appellant argued that the mistake was due to the chartered accountants' error and was not intentional. The CIT(A) held it was a deliberate attempt by the appellant to conceal income, citing strict liability under Explanation-1 of section 271(1)(c). However, the ITAT found the mistake was not deliberate, as all relevant facts were disclosed, showing the appellant's bonafide intent. Relying on precedents, the ITAT deleted the penalty, as the mistake was technical and not intentional.

Entertainment Expenses Disallowance:
The Assessing Officer disallowed Rs. 2,99,122 of entertainment expenses, claiming they were personal in nature. The appellant argued the expenses were related to the design consultancy business. The ITAT referred to a Supreme Court ruling stating that disallowed claims alone do not attract penalty under section 271(1)(c). Following this precedent, the ITAT directed the cancellation of the penalty related to the disallowed entertainment expenses. Consequently, the appeal was allowed on all grounds, and the penalty was set aside for both the long-term capital loss addition and entertainment expenses disallowance.

This judgment highlights the importance of bonafide intent and disclosure of material facts in penalty proceedings under section 271(1)(c). It also emphasizes that technical errors or disallowed claims may not always warrant penalties if there is no deliberate attempt to conceal income.