Expenses claimed in profit and loss account not amount to concealment-ITAT deletes penalty u/s 271(1)(c)

Expenses claimed in profit and loss account not amount to concealment. ITAT deletes penalty u/s 271(1)(c) following Supreme Court judgment 

ABCAUS Case Law Citation:
ABCAUS 2272 (2018) (04) ITAT

The appellant assessee had challenged the action of CIT(A) on confirming the penalty imposed by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 (the Act).

The assessee had filed its return of income and assessment was completed u/s 143(3) of the Act. In the assessment proceedings the Assessing Officer made several disallowances and two of the disallowance made were expenses incurred on award collection and disallowance of donations. The Assessing Officer imposed penalty for concealment of income by passing order u/s 271(1)(c) of the Act for these disallowances. Aggrieved the assessee filed appeal before the CIT(A) who also upheld the penalty imposed by the Assessing Officer.

Aggrieved, the assessee was in appeal before ITAT.

It was submitted that the assessee was awarded by Government of India for achieving the desired quality and production in its category and to collect award the assessee had incurred expenses on his stay at hotel. It was argued that the award expenses incurred by the assessee were its business expenses as the award was given with respect to the business of the assessee compan. However, the Assessing Officer held that since the award income was exempt therefore, expenses incurred in relation to award were not allowable.

As regards donations, it was submitted that these donations were made for the purpose of keeping harmonious business relation in the area of operation and therefore, was necessarily a business expenditure.

It was also contended that the assessee had claimed these expenses in its profit & loss account and from the details of the profit & loss account the Assessing Officer disallowed the same therefore, it could not be said that the assessee had concealed any particulars of income or had furnished inaccurate particulars of income. Relying on the judgment of Hon’ble Supreme Court it was submitted that as held by the Apex Court, every wrong claim made by the assessee cannot tantamount to furnishing of wrong particulars of income or concealment of income.

The Tribunal observed that the assessee had claimed these expenses in the profit & loss account and from the profit & loss account itself the Assessing Officer came to conclusion that these expenses were not allowable.

The ITAT noted that Hon’ble Supreme Court had held that a wrong claim which is not sustainable in law in itself will not amount to furnishing of wrong particulars of income or concealment of income. In that case, the Revenue argued that the falsehood in accounts can take two forms; (i) suppression of receipt, and  (ii) false or exaggerated claim of expenditure. Both types attempt to reduce the taxable income and, therefore, both amounted to concealment of particulars of one’s income as well as furnishing of inaccurate particulars of income. However the Apex Court rejected this contention and held that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty under Section 271(1)(c).

The Tribunal deleted the penalty sustained by CIT(A) and allowed the appeal of the assessee.