No Penalty u/s 271(1)(c) for mere disallowance in quantum proceedings

No Penalty u/s 271(1)(c) for mere disallowance in quantum proceedings in the absence of any falsity in the explanation offered

ABCAUS Case Law Citation:
ABCAUS 3104 (2019) (08) ITAT

Important case law relied upon by the parties:
CIT vs. Reliance Petro Products Pvt. Limited (322 ITR 158) (sc)
Price Waterhouse Coopers vs. CIT (348 ITR 306) (SC)
BTX Chemicals Private Limited (288 ITR 196) (Guj)

The instant appeal had been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals) in confirming in the penalty order passed by the Assessing Officer (AO) under s. 271(1)(c) of the Income Tax Act, 1961 (the Act).

The assessee was a Private Limited Company engaged in the business of development of property. It deposited margin money with Debt Recovery Tribunal (DRT) in relation to an auction to be conducted by DRT for acquisition of property as co-participant. The total amount of Rs.22.50 Lakhs was deposited originally which included deposit of Rs.7 Lakhs made directly by the assessee to the DRT and the remaining amount was deposited by the co-participant.

The bid of the assessee was not accepted and consequently, the aforesaid amount was refunded by the DRT. However, the total amount of Rs. 22.50 Lakhs was refunded to co-participant on failure of auction bid. The assessee could not recover the aforesaid amount of Rs. 7 Lakhs from the co-participant and consequently booked the said amount as loss arising from business owing to failure of such recovery.

The assessee submitted that the claim of the assessee towards revenue loss, while might be not allowable, but however was not actuated by any dishonest conduct and was not malafide. It was contended that the case of the assessee was governed by the number of decision including landmark decision of the Hon’ble Supreme Court,

The Tribunal observed that the imposition of penalty under section 271(1)(c) of the Act on disallowance of expenditure of Rs.7 Lakhs claimed by the assessee as loss on forfeiture for the year under consideration was subject matter of controversy.

It was observed that it was the case of the assessee that it had given a part of business advance amounting to Rs.7 Lakhs to DRT for acquiring property for development as a joint participant with other participant namely Shri Shailesh Patel. The money was refunded by the DRT to the other co-participant which could not be recovered by the assessee. In the circumstances, where the payment of margin money to DRT is not in dispute, the claim of expenditure for such loss on account of non-recovery, while disallowed in quantum proceedings, is not sufficient per se to impose penalty under s. 271(1)(c) of the Act.

The Tribunal opined that the imposition of penalty is not automatic consequence. The assessee had offered explanation for claim of expenditure which was plausible when tested for the purposes of liability in the form of penalty.

No Penalty u/s 271(1)(c) for mere disallowance in quantum proceedings

The Tribunal opined that under the circumstances, merely because the claim of expenditure was found to be wrong and not in accordance with law by itself will not justify penalty in the absence of any falsity in the explanation offered.

Accordingly, the Tribunal set aside the order of the CIT(A) and directed the AO to cancel the penalty.

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