ITAT rules in favor of assessee, deletes penalty under section 271(1)(c) - voluntary disallowance.

The ITAT allowed the assessee's appeal, ruling in favor of the assessee. The penalty imposed by the Assessing Officer under section 271(1)(c) was deleted as the disallowance of expenses was voluntary and not prompted by the AO, and thus, not within the scrutiny scope. The issue of specifying charges for penalty initiation was not addressed. The judgment was pronounced on 30th July 2019.

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Issues:
Levy of penalty u/s.271(1)(c) for offering expenses suo motu and challenge to the validity of penalty notice.

Analysis:
1. The assessee filed a return declaring a loss, which was selected for scrutiny based on various points. The assessee revised the computation during assessment proceedings, withdrawing certain expenses. The Assessing Officer initiated penalty proceedings u/s. 271(1)(c) due to no business activity and disallowed expenses. The CIT(A) upheld the penalty, stating that inaccurate particulars were furnished by claiming inadmissible expenses.

2. The assessee contended that the expenses were not the subject of scrutiny, and before any query, revised the computation, demonstrating good faith. The assessee challenged the notice validity for not specifying charges. The assessee argued that penalty cannot be levied for suo motu disallowance. The DR cited cases supporting penalty imposition.

3. The ITAT found that the assessee voluntarily offered disallowance at the start of assessment proceedings without specific queries on expenses. As the disallowance was not prompted by the AO, no penalty under section 271(1)(c) was justified. The penalty was deleted as the disallowance was not within the scrutiny scope. The issue of specifying charges for penalty initiation was not addressed, being academic.

4. The ITAT allowed the assessee's appeal, ruling in favor of the assessee. The penalty imposed by the Assessing Officer was deleted. The judgment was pronounced on 30th July 2019.

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