ITAT allows appeal against penalty under Section 271(1)(c) for mere expense disallowance without mala fide intent

The ITAT Delhi allowed the assessee's appeal against penalty u/s 271(1)(c). The AO had imposed penalty for concealment of income after making additions on estimate basis by disallowing 10% of expenses. The ITAT held that mere disallowance of expenses without evidence of mala fide intent does not justify penalty. The AO accepted declared income but disallowed expenses based on estimation, which does not constitute concealment of income particulars. The CIT(A) failed to address the assessee's contention that penalty was assured not to be levied if quantum appeal was withdrawn.

---

---

Issues:
The judgment involves the confirmation of penalty under section 271(1)(c) by the Ld. CIT(A) for the Assessment Year 2013-14, based on the concealment of income and the subsequent appeal by the assessee challenging the levy of penalty.

Details:
The assessee, engaged in trading and manufacturing of timber products and firewood, initially declared income of Rs. 4,82,499/- which was revised to Rs. 6,34,500/-. During assessment proceedings, the Ld. AO disallowed 10% of total expenses and profit and loss account amounting to Rs. 20,02,130/- and added it to the income of the assessee under section 143(3) of the Income Tax Act, 1961. Subsequently, penalty proceedings were initiated under section 271(1)(c) for concealing income.

The assessee requested to keep the penalty proceedings in abeyance till the disposal of the quantum appeal. However, the penalty of Rs. 5,38,180/- was imposed by the Ld. AO for concealing income. The assessee challenged this penalty before the Ld. CIT(A) on the grounds that the additions in the assessment were based on estimates and no evidence of concealment was provided.

The Ld. CIT(A) confirmed the penalty, stating that the reply uploaded had no relevance to the levy of penalty and no evidence was presented to support the plea raised by the assessee. The Tribunal observed that the disallowance of expenses was on an estimate and adhoc basis, not due to concealment of income. Referring to legal precedents, the Tribunal held that the disallowance did not justify the penalty under section 271(1)(c).

The Tribunal noted that the Ld. AO computed income based on particulars from the tax audit report and disallowed expenses on an estimate basis. It was concluded that there was no concealment of income justifying the penalty. The Ld. CIT(A) did not address the contention raised by the assessee regarding the incorrectness of the concealment charge, leading to the deletion of the penalty.

In conclusion, the Tribunal held that the impugned penalty was not justified and subsequently deleted it, allowing the appeal of the assessee.

Order pronounced in the open court on 14th March, 2024.

---