In the case ITA No. 5583/DEL/2019, the appellant Veera Apartments Pvt. Ltd. from New Delhi challenged the imposition of a penalty by the ACIT, Circle-26(1), New Delhi for the assessment year 2011-12. The case was filed on 26th June 2019, and the final tribunal order was pronounced on 22nd September 2022.
The penalty was imposed under Section 271(1)(c) of the Income Tax Act, 1961, due to disallowances made during the assessment. The appellant argued that the penalty was arbitrary and lacked jurisdiction.
The appellant challenged the imposition of a penalty of Rs.6,77,000/- under Section 271(1)(c) on the following grounds:
The tribunal examined the facts and records of the case, noting that the disallowance was based on a judgment call regarding the business expediency of the expenses. The tribunal made several key observations:
The tribunal emphasized that penalty proceedings are separate and independent from assessment proceedings. Disallowance in assessment does not automatically justify a penalty under Section 271(1)(c). The explanation provided by the appellant was considered in determining the bona fide nature of the claim.
The tribunal noted that the satisfaction recorded by the Assessing Officer (AO) regarding concealment and inaccurate particulars was vague and general. It was essential to demonstrate that the appellant had intentionally concealed income or furnished inaccurate particulars, which was not adequately established.
The disallowance of business promotion expenses was based on a subjective judgment regarding their commercial expediency. The tribunal found that such disallowance, based on an inference, did not amount to concealment of income or furnishing inaccurate particulars. The claim for expenses, even if erroneous, was made in a bona fide manner.
The tribunal referred to Explanation-I of Section 271(1)(c), highlighting the necessity for clear evidence of concealment or inaccurate particulars. The tribunal underscored that disallowance of expenses on judgment/estimated basis does not fall under the mischief of Section 271(1)(c).
The tribunal concluded that the penalty under Section 271(1)(c) was not justified. The appellant’s claim for business promotion expenses, although disallowed in the quantum proceedings, did not amount to concealment of income or furnishing of inaccurate particulars. The tribunal directed the Assessing Officer to delete the penalty.
The final judgment underscores the importance of distinguishing between assessment and penalty proceedings, emphasizing the need for clear evidence of concealment or inaccurate particulars to justify a penalty under Section 271(1)(c).
Order pronounced in open court on 22nd September 2022.
Members of the Tribunal:
Judicial Member: Chandra Mohan Garg
Accountant Member: Pradip Kumar Kedia
Veera Apartments vs ACIT, Circle-26(1), New Delhi: Penalty Dispute for AY 2011-12
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