Tribunal deletes penalty under sec 271AAB as expenses were genuine, admissions to avoid litigation not sufficient

The Tribunal allowed the appeal, deleting the penalty levied under section 271AAB, as the expenses were recorded in the books and not found to be false. The admissions made during the search were to avoid litigation, which does not justify the penalty under section 271AAB. The appeal of the assessee was allowed.

---

---

Issues Involved:
1. Validity of penalty under section 271AAB initiated under section 271(1)(c).
2. Levy of penalty under section 271AAB on specific disallowances.

Issue-wise Detailed Analysis:

1. Validity of Penalty under Section 271AAB Initiated under Section 271(1)(c):
The assessee argued that the penalty levied by the AO under section 271AAB was invalid as the initiation of penalty was under section 271(1)(c) by issuance of notice under section 274 read with section 271(1)(c). The AO later corrected this defect under section 292B, stating that the penalty should be read as issued under section 271AAB. The Tribunal noted that the penalty was initially proposed under section 271(1)(c) for furnishing inaccurate particulars and concealment of income, but later corrected to section 271AAB, which was contested by the assessee.

2. Levy of Penalty under Section 271AAB on Specific Disallowances:
The CIT(A) confirmed the penalty under section 271AAB for the following disallowances:

a. Sales Promotion Expenses (Rs. 8,39,35,025):
- The assessee contended that the expenditure was recorded in the books and not claimed as a deduction in the return due to a possible disallowance under section 37 based on CBDT Circular No. 5/2012. The Tribunal noted that the expenditure was not found to be false and hence did not qualify as 'undisclosed income' under section 271AAB.

b. Research and Development Expenses (Rs. 4,67,96,325):
- The assessee argued that the expenses were incurred and recorded in the books, and the claim under section 35(2AB) was to be made while filing the return. The Tribunal agreed that these expenses did not fall under 'undisclosed income' as defined in section 271AAB.

c. Sales Promotion Expenses Incurred After Search (Rs. 4,08,20,319):
- The Tribunal found that expenses incurred after the date of search and disallowed voluntarily in the return could not be penalized under section 271AAB.

d. Training Expenses (Rs. 40,40,000):
- The Tribunal noted these expenses were supported by documentary evidence and were recorded in the books, thus not qualifying as 'undisclosed income.'

e. Discrepancy in Physical Stock at R&D Centre (Rs. 14,05,680):
- The Tribunal found that the discrepancy was noted during the search but was recorded in the books, thus not falling under 'undisclosed income.'

f. Reduction in Depreciation (Rs. 15,95,863):
- The Tribunal noted that the purchases were supported by invoices and payments made by cheques, thus not qualifying as 'undisclosed income.'

The Tribunal concluded that the expenses were recorded in the books and were not found to be false. The admissions made during the search were to avoid litigation and buy peace, which is not a valid ground for penalty under section 271AAB. The Tribunal deleted the penalty and allowed the appeal of the assessee on merits.

Conclusion:
The Tribunal allowed the appeal, deleting the penalty levied under section 271AAB, as the expenses were recorded in the books and not found to be false. The admissions made during the search were to avoid litigation, which does not justify the penalty under section 271AAB. The appeal of the assessee was allowed.

---