Penalty under Section 271(1)(c) set aside for disallowed expenditure; foreign travel penalty upheld due to lack of substantiation.

The ITAT allowed the assessee's appeal for the assessment year 2009-10, setting aside the penalty imposed under section 271(1)(c) for disallowed expenditure on raising authorized share capital and capitalization of interest expenditure. For the assessment year 2010-11, the ITAT partly allowed the appeal, deleting the penalty related to interest expenditure but upholding the penalty for foreign traveling expenses due to insufficient substantiation provided by the assessee.

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Issues Involved:
The issues involved in this judgment are the confirmation of penalty under section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income, specifically related to expenditure on raising authorized share capital, capitalization of interest expenditure, and foreign traveling expenses for the assessment years 2009-10 and 2010-11.

Assessment Year 2009-10:
The Assessing Officer disallowed an expenditure incurred on raising authorized share capital, leading to the initiation of penalty proceedings under section 271(1)(c). The CIT(A) confirmed the penalty, stating that the claim was not allowable under the law and was not withdrawn voluntarily. However, the ITAT, considering judicial precedents, held that penalty cannot be imposed when there was no willful concealment and the mistake was a human error. Therefore, the penalty imposed under section 271(1)(c) was set aside, allowing the assessee's appeal.

Assessment Year 2010-11:
1. The Assessing Officer disallowed interest expenditure related to capital work in progress, leading to a penalty under section 271(1)(c). The CIT(A) upheld the penalty, stating that no presumption could be made regarding the utilization of interest-free funds. The ITAT found the issue debatable, emphasizing that the mere disallowance by the Assessing Officer does not automatically lead to the levy of penalty. As the Assessing Officer did not establish concealment or furnishing inaccurate particulars of income, the penalty was directed to be deleted.

2. The Assessing Officer disallowed foreign traveling expenses, and the CIT(A) confirmed the penalty under section 271(1)(c) due to lack of substantiation of the business rationale for the expenses. The ITAT agreed with the CIT(A), noting the general explanation provided by the assessee was insufficient. Therefore, the penalty was upheld for this ground of appeal.

Conclusion:
The ITAT allowed the assessee's appeal for the assessment year 2009-10 and partly allowed the appeal for the assessment year 2010-11. The penalty imposed under section 271(1)(c) was set aside for the disallowed expenditure on raising authorized share capital and the capitalization of interest expenditure. However, the penalty for foreign traveling expenses was upheld due to the lack of substantiation provided by the assessee.

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