M/S. RATNAKAR SECURITIES PVT. LTD.,AHMEDABAD vs. THE ACIT, CIRCLE-1(3), AHMEDABAD

The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-10, Ahmedabad (‘CIT(A)’ in short), dated 23.07.2018 arising in the penalty order dated 27.03.2017 passed by the Assessing Officer (AO) under s. 271(1)(c) of the Income Tax Act, 1961 (the Act) concerning AY 2012-13.

We have considered the submissions made on behalf of the Revenue and perused the orders of the authorities below. The controversy involves imposition of penalty u/s.271(1)(c) of the Act on disallowance of donations paid as non-business expenses. We straightway note that in order to attract penalty u/s.271(1)(c) of the [M/s Ratnakar Securities Pvt. Ltd. vs. ACIT] A.Y. 2012-13 - 3 - Act, it is necessary that there must be concealment by the assessee of the particulars of his income or furnishing of inaccurate particulars. The disallowance of certain expenditure actually incurred on the grounds of lack of commercial expediency is neither concealment of any particulars of income per se nor can be regarded as furnishing of inaccurate particulars as such. Needless to say, before penalty can be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represents income and the assessee has concealed the particulars thereof or furnished inaccurate particulars. It is not the case of the AO that assessee has in fact not incurred any donation expense as claimed. The AO in the assessment order himself has noted in para 5 that payment of donation has been shown distinctly in the financial statement but however the expenses have not been excluded while determining the taxable income. A conspectus of the Explanation – 1 to Section 271(1)(c) of the Act makes it clear that the statute visualized the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. While the AO may be justified in making disallowance of donation expenses as non-business expenditure in quantum proceedings, such disallowance cannot automatically invite imposition by way of penalty. When all material facts relevant to the said claim were placed on record, the presence or absence of commercial instinct in a given case is a matter of inference. Such adverse inference against assessee would not attract imposition of penalty. The claim of expenditure towards donation made, at best, be taken as erroneous claim by the assessee. Such claim made in a bonafide manner cannot lead to imposition of penalty. Although such claim may not be maintainable for the purposes of quantum proceedings however, in the absence of any falsity per se in such claim, making an incorrect claim for deduction is not at par with concealment or inaccurate particulars of income. [M/s Ratnakar Securities Pvt. Ltd. vs. ACIT] A.Y. 2012-13 - 4 - 7. We also take note of the decision of the Hon’ble Bombay High Court in the case of CIT vs. Dalmia Dyechem Industries Ltd. Income Tax Appeal No. 1396 of 2013 judgment dated 06.07.2015 to observe that the penalty cannot be imposed unless the action of the assessee per se is dishonest, malafide and amounting to concealment of facts. There, being no concealment of fact per se imposition of penalty is not justified. The penalty, in our view, is clearly not maintainable in the absence of any contumacious or dishonest conduct. Consequently, we set aside the order of the CIT(A) and direct the AO to delete the penalty on disallowance of estimated interest expenditure.

In the result, appeal of the assessee is allowed ex parte.