2025 (3) TMI 303 - AT - Income Tax

Penalty under section 271(1)(c) cannot be imposed when exemption denied and trust expenses disallowed without concealment

Bhaktvatsal Sadguru Yogiraj Vasantrao Gopalrao Ghonge Maharaj Trust Versus Asstt. Commissioner of Income Tax Circle–1 (1), Nagpur

ITAT Nagpur held that penalty under section 271(1)(c) cannot be imposed where AO denied exemption under section 11 and disallowed trust expenses. The ... Penalty u/s 271(1)(c) - AO denying the exemption u/s 11 of the Act and disallowing the expenses towards the object of the assessee trust - HELD THAT:- Expenses claimed by the assessee was disallowed by the AO which neither falls under the realm of concealment of income nor filing of inaccurate particulars of income and hence under these facts and circumstances, penalty cannot be levied u/s 271(1)(c) of the Act. Consequently, we hereby cancel the levy of penalty imposed by the AO and confirmed by the learned CIT(A). Accordingly, grounds raised by the assessee are allowed. The appeal before the Appellate Tribunal concerned the imposition of a penalty under section 271(1)(c) of the Income Tax Act, 1961 on the assessee, a registered trust, for allegedly furnishing inaccurate particulars of its income. The Tribunal considered the impugned order dated 27/09/2024 by the Commissioner of Income Tax (Appeals) for the assessment year 2009-10. The assessee raised grounds challenging the denial of exemption under section 11 of the Act and the disallowance of expenses towards the trust's object. The Tribunal noted that the assessee failed to appear for the hearing, and the appeal was considered based on the material available on record.The facts revealed that a search operation under section 132 of the Income Tax Act was conducted at the residential premises of an individual, resulting in the discovery of incriminating documents. The Assessing Officer concluded that the trust was formed to obtain tax benefits on donations without maintaining proper books of account. Consequently, the exemption under section 11 of the Act was denied, and the expenses claimed by the trust were disallowed. Subsequently, penalty proceedings under section 271(1)(c) were initiated, leading to the imposition of a penalty for furnishing inaccurate particulars of income.The Commissioner of Income Tax (Appeals) upheld the penalty order, emphasizing the failure of the assessee to provide explanations or evidence in support of its claims. The Tribunal affirmed the Commissioner's decision, considering the lack of substantiation from the assessee during the appellate proceedings. However, upon review, the Tribunal found that the expenses claimed by the assessee did not amount to concealment of income or filing inaccurate particulars. Therefore, the Tribunal canceled the penalty levied under section 271(1)(c) and allowed the assessee's appeal.In summary, the Tribunal's decision revolved around the denial of exemption under section 11, the disallowance of expenses, and the imposition of a penalty under section 271(1)(c) on the assessee trust. The Tribunal ultimately ruled in favor of the assessee, concluding that the expenses claimed did not warrant the penalty under the provisions of the Income Tax Act.