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Facts
The assessee filed its return declaring a loss. The assessment was completed with additions/disallowances, including disallowance of expenses on visa, ticketing, and other charges. Penalty proceedings were initiated under Section 271(1)(c) based on the AO's belief that the assessee furnished inaccurate particulars.
Held
The Tribunal held that penalty under Section 271(1)(c) cannot be imposed solely on the basis of disallowance of expenditure, especially when the disallowance is made on an estimation basis or ad hoc basis without a definite finding of concealment or inaccurate particulars.
Key Issues
Whether penalty under Section 271(1)(c) can be imposed for disallowances made on an estimation basis without a definite finding of concealment or inaccurate particulars?
Sections Cited
271(1)(c), 143(3), 36(1)(va), 2(24)(x), 274
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES ‘B’, NEW DELHI.
Before: SHRI SATBEER SINGH GODARA & SHRI S.RIFAUR RAHMAN
(Assessment Year: 2016-17) Genchi India Private Limited, vs. ACIT, Circle 10(1), Ground Floor, TEK Tower, New Delhi. Rajiv Gandhi Salai (OMR), Thoraippakam, Chennai – 600 097 (Tamil Nadu). (PAN : AAECK7486M) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ranjan Chopra, CA REVENUE BY : Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing : 25.06.2025 Date of Order : 25.06.2025 O R D E R
PER S.RIFAUR RAHMAN,AM:
The assessee has filed appeal against the order of the Learned Commissioner of Income-Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 13.12.2024 for the Assessment Year 2016-17.
The only effective issue to be decided in this appeal is as to whether the ld. NFAC was justified in confirming the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 (for short ‘the Act’) in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the material available on record. The return of income declaring loss of Rs.8,67,25,234/- was filed on 30.11.2016. The case was selected for scrutiny and the assessment was completed under section 143(3) of the Act on 15.12.2018 at a loss of Rs.8,38,30,690/- after making additions/disallowance of Rs.28,94,547/- and the additions/disallowances are as under :- (i) Disallowance of expenses on account of visa, Rs.11,80,389/- Ticketing and other expenses. (ii) Disallowance u/s 36(1)(va) r.w.s. 2(24)(x) of the Rs.17,14,158/- I.T. Act.
The penalty proceedings were initiated u/s 271(1)(c) by issuing notice u/s 274 of the Act on 15.12.2018 after being satisfied that the assessee had furnished in accurate particulars of its income. During penalty proceedings, Assessing Officer observed that during the year under consideration, the assessee company claimed expenses amount to Rs.38,71,270/- towards visa, ticketing and other charges under the head ‘administration expenses’. During assessment proceedings, assessee company was asked to bifurcate these expenses and furnish the details along with supporting documentary evidences but assessee did not filed any reply. But in response to show cause notice, assessee submitted bills/invoices amounting to Rs.26,90,881/- vide submission dated 12.12.2018. However, assessee failed to submit the complete details/ bills as sought for the abovesaid expenses and a sum of Rs.11,80,380/- (Rs.38,71,270 – Rs.26,90,881) on account of visa, ticketing and other charges were disallowed and added to the total income of the assessee. Against this addition, assessee has not filed any appeal before the ld. CIT(A). Since the assessee company failed to submit the complete details/bills with regard to expenses of Rs.11,80,380/-, Assessing Officer was of the opinion that assessee has deliberately exaggerated its expenses and furnished inaccurate particulars of its income and accordingly, penalty u/s 271(1)(c) of the Act was imposed on the aforesaid amount @ 100% of tax i.e. Rs.3,64,740/- after relying on various decisions. On appeal before the ld. CIT (A), he upheld the penalty imposed by the Assessing Officer. Aggrieved, the assessee preferred further appeal before us.
Before us, ld. AR for the assessee submitted that these were the disallowances made by the AO on estimation basis and it is the settled legal position that there cannot be any imposition of penalty u/s 271(1)(c) of the Act in respect of disallowances made on estimation basis. He further submitted that the assessee had made bona-fide disclosures through all the necessary particulars in the return of income. Mere disallowance of a claim made bonafide would not amount to concealment of particulars of income or furnishing inaccurate particulars of such income to warrant imposition of penalty u/s 271(1)(c) of the Act. In this regard, he placed reliance on the decision of CIT Vs. Reliance Petrol Products Pvt. Ltd. 322 ITR 158 (SC). On the other hand, ld. DR of the Revenue relied on the orders of the authorities below.
After considering the submissions of both the parties and facts on record, we observe that it is a basic requirement of the provisions of law that definite finding is required to be recorded by the AO for reaching to a conclusion with regard to concealment of income or furnishing of inaccurate particulars of income and without any such findings, there cannot be any question of imposition of any penalty u/s 271(1)(c) of the Act. We observe that assessee cannot be penalized for making a claim of expenditure, which is not acceptable to AO. In fact it is found that A.O. disallowed expenditure on ad hoc basis. This itself shows that there is no dispute regarding all particulars being filed by assessee which is disallowed in part by AO on premise that it has not been incurred exclusively and wholly for purpose of business of assessee. We observe that the AO has not brought on record anything contrary to establish that claim of assessee does not pertain to the expenses incurred except assessee failed to furnish the required details and not preferred appeal before first appellate authority. In this regard, we find force from the decision of Hon’ble Supreme Court in the case of Reliance Petroproducts Ltd. reported in 322 ITR 158 (SC). Keeping in view the totality of the facts and circumstances of the case, we are of the considered view that penalty under section 271(1)(c) of the Act cannot be imposed on the basis of disallowance of expenditure. Accordingly, the penalty levied is deleted and the appeal of the assessee is allowed.