2024 (9) TMI 584 - AT - Income Tax

Tribunal Orders Removal of Unjustified Income Tax Penalty Based on Estimated Expense Disallowance, Favoring Assessee.

The Tribunal allowed the appeal, directing the deletion of the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The Tribunal ... Penalty u/s 271(1)(c) - adhoc disallowance of 20% of the expenses - HELD THAT:- We find the Hon'ble Supreme Court in the case of CIT vs. Reliance Petro Products (P) Ltd. [2010 (3) TMI 80 - SUPREME COURT] has held that mere making of a claim which is not sustainable in law by itself, will not attract penalty under the section when the assessee has furnished all the particulars of income, which are not found to be inaccurate. It is up to the authorities to accept the claim of the assessee or not, but that cannot call for imposition of penalty. There are umpteen number of decisions in which it has been held that no concealment penalty can be imposed for disallowance of expenses on estimate basis. Such decisions include CIT vs. Ajaib Singh and Co. [2001 (8) TMI 79 - PUNJAB AND HARYANA HIGH COURT], Naranbhai Veerabhai and Co. [1992 (10) TMI 46 - GUJARAT HIGH COURT] and Addl. CIT vs. Delhi Cloth and General Mills Co. Ltd. [1984 (1) TMI 10 - DELHI HIGH COURT] Since the major amount has already been deleted by the CIT(A) / NFAC and the only addition is an estimated lump sum addition debited in the Profit and Loss Account, therefore, we are of the considered opinion that penalty u/s 271(1)(c) of the Act is not leviable in the instant case. We, therefore, set aside the order of the Ld CIT(A)/NFAC and direct the AO to delete the penalty levied u/s 271(1)(c) - Appeal filed by the assessee is allowed. Issues:Assessment of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on adhoc disallowance of expenses.Detailed Analysis:Issue 1: Adhoc disallowance of expenses leading to penalty under section 271(1)(c)The appeal was against the order confirming the penalty of Rs. 57,69,152 levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer had made various additions during assessment, including adhoc disallowance of expenses and unsecured loans, and an addition on account of the sale of immovable property. The CIT(A) deleted some additions but sustained a lump sum addition of Rs. 2,50,000 out of the adhoc disallowance of expenses. The penalty notice was issued by the Assessing Officer based on these additions.Issue 2: Arguments and DecisionsThe counsel for the assessee argued that the penalty on adhoc disallowance was not in accordance with the law and should be deleted. The counsel relied on various decisions to support this argument. The Department, represented by the DR, supported the orders of the Assessing Officer and the CIT(A)/NFAC.Issue 3: Tribunal's DecisionAfter considering the arguments and reviewing the orders, the Tribunal referred to the decision in CIT vs. Reliance Petro Products (P) Ltd. and other cases. The Tribunal noted that the major part of the addition had been deleted by the CIT(A)/NFAC, leaving only a lump sum addition of Rs. 2,50,000 out of the total expenses. The Tribunal held that the mere making of a claim not sustainable in law does not attract penalty if all income particulars are furnished accurately. Citing precedents, the Tribunal concluded that no concealment penalty can be imposed for disallowance of expenses on an estimated basis. Therefore, the Tribunal set aside the CIT(A)/NFAC's order and directed the Assessing Officer to delete the penalty under section 271(1)(c) of the Act.ConclusionThe Tribunal allowed the appeal filed by the assessee, ruling in favor of deleting the penalty. The decision was pronounced in open court on 10th September, 2024.