2024 (5) TMI 293 - AT - Income Tax

Penalty for Cash Business Expense Disallowance Deleted Due to Non-Concealment of Income: Tribunal Favors Assessee.

The ITAT deleted the penalty imposed under section 271(1)(c) for disallowance of cash business expenses under section 40(A)(3), amounting to Rs. ... Penalty u/s 271(1)(c) - disallowance of cash business expenses by invoking provisions of Sec 40(A)(3) - HELD THAT:- We find that in this case, assessee does not deserve to be visited with the rigours of penalty u/s 271(1)(c) of the Act. The case laws cited above duly supports the case of the assessee [MSK CONSTRUCTIONS P. LTD. [2007 (3) TMI 181 - MADRAS HIGH COURT] and RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT]. Furthermore, the conduct of the assessee is not contumacious. Accordingly, relying on the precedent as above, we delete the penalty. Appeal filed by the assessee is allowed. Assessments: additions u/s 14A - Rs. 16,65,333 and u/s 40A(3) - Rs. 2,25,148. ITAT upheld the disallowance u/s 40A(3). AO levied penalty u/s 271(1)(c) of the Act of Rs. 1,72,227, which was confirmed on appeal by the CIT(A). Primary issue: whether mere disallowance under deeming provision s. 40A(3) (and analogous non-taxable adjustments) warrants penalty u/s 271(1)(c) for concealment. Assessee reliance: Madras High Court in CIT v. MSK Constructions (P) Ltd. and Apex Court in CIT v. Reliance Petro Products. MSK Constructions was quoted: 'In the instant case, the Tribunal after going through the records observed that the disallowance of interest under section 43B of the Act does not amount to concealment of income and that when there is no tax payable, penalty could not be levied.' Tribunal's rationale: disallowance arose from deeming provisions and there was no contumacious conduct or concealment; therefore the rigours of s. 271(1)(c) are not attracted. Penalty deleted and appeal allowed.