P N INTERNATIONAL,LUCKNOW vs. DCIT/ACIT-3,LUCKNOW-NEW, LUCKNOW

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘A’ BENCH, LUCKNOW BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.694/LKW/2025 A.Y. 2014-15 P.N. International, vs. DCIT/ACIT-3, C-12, Amausi Industrial Area, Lucknow-New Lucknow, Amausi B.O. Lucknow PAN: AAGFP4825J (Appellant) (Respondent) Assessee by: Sh. Akash Agrawal, C.A. Revenue by: Sh. Amit Kumar, DR Date of hearing: 10.02.2026 Date of pronouncement: 30.04.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), NFAC passed under section 250 of the Income Tax Act, 1961 on 22.07.2025, wherein the ld. CIT(A) has dismissed the appeal of the assessee against the penalty under section 271(1)(c), that was levied upon the assessee for the A.Y. 2014-15, vide the orders of the Assessing Officer dated 11.05.2018. The grounds of appeal are as under:- “1. That the Ld. Assessing Officer has erred in law by invoking Explanation I to section 271(1)(c) of the Income Tax Act, 1961 at the time of invoking penalty of Rs. 8,00,000.00 as well as National Faceless Appeal centre by confirming the said penalty by overlooking the fact that the said explanation is applicable only for penalty on accounts of concealment of income as mentioned clearly in the Explanation and as such the penalty imposed on wrong premise deserves to be deleted. 2. That the Ld. Assessing Officer has erred on facts in imposing penalty of Rs. 8,00,000.00 us 271(1)(c) of the Income Tax Act, 1961 on a biased approach that every disallowance made shall attract penalty without appreciating the fact that the appellant has surrendered such expense as the documents were not readily available within the short span of time provided to furnish the reply and also to

ITA No.694/LKW/2025 A.Y. 2014-15 P.N. International buy peace of mind and avoid further litigation and as such, the penalty deserves to be deleted considering the principles of natural justice. 3. That the Ld. Assessing Officer has erred in law by imposing penalty of Rs. 8,00,000.00 us 271(1)(c) of the Income Tax Act, 1961 by vehemently holding that the case laws cited, included one Apex Court Judgement, by the appellant are found to be differentiable from the case of the assessee without specifying as to how the same are different from the facts of the case of assessee and cited lower courts judgements to support his biased view in order to impose the penalty which is detrimental and as such the penalty deserves to be deleted. 4. That the Ld. Assessing Officer has erred in facts by not even considering the plea of the assessee that the amount was surrendered only to buy peace of mind and to avoid further litigation and considering the principles of natural justice, the imposition of penalty seems to be unreasonable, devoid of merits and the same shall be deleted. 5. That the appellant craves leave to add OR amend OR alter any of the grounds of appeal on OR before the date of bearing.”

ITA No.694/LKW/2025 A.Y. 2014-15 P.N. International personal & misc. expenses besides tuition fees and related expenses. He, therefore, proposed to disallow a sum of Rs. 23,09,075/- on this account. As the assessee did not file any objection to the same, the disallowance was made. Furthermore, a sum of 10% of Rs. 8,34,179/- incurred for their travel was also disallowed and added back. On this account, the ld. AO initiated penalty proceedings under section 271(1)(c). 3. During the penalty proceedings, the ld. AO asked the assessee to show cause as to why penalty under section 271(1)(c) should not be levied. The assessee again submitted that Ranjit Sapra and Ajit Sapra had been sent to College of Engineering, Purdue University, USA because metal processing formed 80% of operations in the company and mechanical engineering graduate was best suited to run the business. Furthermore, a comprehensive knowledge of industrial management was mandatory to run the business successfully hence an industrial engineer was also required. It was also submitted that no business could be successful without excellent managerial capabilities covering all aspects of Administration, H.R., Marketing and therefore, Laxmi Nigam had been sent to pursue studies in business management. 4. The ld. AO noted that upon submission of the break-up expenses, the ld. AO passing the assessment order had observed that certain personal expenses and misc. expenses amounting to Rs. 22,25,655/- that had been incurred by these candidates and claimed by way of expenditure. Further a sum of Rs. 8,34,179/- had been incurred in the travel and therefore, 10% of the above was disallowed. Thus, total additions of Rs. 23,09,075/- had been made. The ld. AO observed that merely because the assessee had made a surrender of this amount on 19.10.2016, did not mean that the assessee enjoyed any immunity from the penalty under section 271(1)(c), because the

ITA No.694/LKW/2025 A.Y. 2014-15 P.N. International surrender had not been made suo moto but on account of show cause notice issued by the assessee. Furthermore, the assessee had not given any satisfactory reply for claiming personal expenses and therefore, the motive of the assessee was to conceal true income by claiming expenses which were not allowable. He rejected the contention of the assessee, which was that the expenses were duly recorded in the books of accounts and some expense had to be incurred on fooding and lodging of sponsored candidates while living abroad and therefore, such expenses should not be treated as personal expenses and there was no concealment or furnishing of inaccurate particulars of income. The assessee had also placed reliance on a number of case laws including the decision of the Hon’ble Supreme Court in CIT vs. Reliance Petro Products Pvt. Ltd., which held if any information given in the return was found to be incorrect then by no stretch of imagination can making of an incorrect claim in itself tantamount to furnishing incorrect particulars of income. However, the ld. AO relied upon the decision of the Hon’ble Kerela High Court in the case of CIT vs. K.P. Madhusudnan (2000) 246 ITR 218 and levied a penalty of Rs. 8,00,000/- upon the assessee. 5. The assessee is aggrieved and has accordingly come before us in appeal. Sh. Akash Agarwal, C.A. (hereinafter referred to as the ld. AR), arguing on behalf of the assessee submitted that the assessee company had incurred expenses on technical education of the children. The ld. AO had noticed certain expenses on items other than tuition and residence and asked the assessee to prove that these expenses work for business purposes. As the assessee could not provide any direct proof in this regard, it had surrendered the amounts. The ld. AO had initiated penalty proceedings and thereafter levied penalty for, ‘concealment’. However, it was pointed out that in fact, there was no concealment, all the expenses had been duly recorded in the

ITA No.694/LKW/2025 A.Y. 2014-15 P.N. International return of income and they had been claimed for technical education, the reasons of which had been justified before the Assessing Officer. The Assessing Officer had partially accepted the explanations, as he had not made any disallowance on account of the expenses incurred for tuition fees. But the fees on fooding etc., and other misc. expense had been disallowed. It was submitted that any candidate who was sponsored to go abroad was required to incur some personal expenditure for these day-to-day needs. The same constituted a part of business expenditure incurred by the company on the sponsorship of the client. Asking the assessee to prove that they were in the nature of business expenditure, when the overall sponsorship had been accepted was excessive. The assessee had therefore, surrendered the said amounts but neither had any mistake being found in its account nor had any concealment been detected on this account. Therefore, the levy of penalty was incorrect. Furthermore, the AO was incorrect in invoking explanation 1 to section 271(1)(c) because the same was only for concealment and in this particular case, no concealment had been detected. He had prayed that the Hon’ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. (supra), had held that only because an expenditure had been disallowed, penalty could not be levied unless the information given in the return was incorrect. Accordingly, it was prayed that this judgment, which had been cited by the assessee and ignored by the ld. AO should be given effect to and the assessee should be allowed relief in the matter. 6. On the other hand, Sh. Amit Kumar, Sr. DR (hereinafter referred to as the ld. DR) pointed out that the assessee had been confronted with the claimed expenditure and when the assessee could not file any explanation then it had surrendered the amounts. He referred to a decision of the Hon’ble Supreme Court in the case of MAK Data Pvt. Ltd. vs. CIT (2013) 358 ITR 593

ITA No.694/LKW/2025 A.Y. 2014-15 P.N. International in which the Hon’ble Court had held that surrendering income to, ‘buy peace’ or, ‘avoid litigation’ during assessment did not absolve a company from penalty under section 271(1)(c) of the Income Tax Act if they failed to explain the source of the concealed income. Accordingly, he prayed that the penalty may be confirmed. 7. We have duly considered the facts and circumstances of the case and the arguments advanced by both parties. We noted that the assessee had incurred the expenditure upon sponsorship of higher education of the children of the company directors for fields that were closely related to the activities of the company and, in consideration thereof, the ld. AO had accepted that the expenses were deductible to the extent of tuition fees etc. However, the ld. AO had not accepted expenses claimed on account of personal and misc. expenses. The assessee had submitted that every candidate who was sponsored was required to incur some personal and misc. expenses for his stay during the period of the study and the same should therefore, not be held to be expense in the nature of personal expenditure but when asked to prove that these were not personal expenditures, the assessee had surrendered this amount to buy peace and avoid vexatious litigation. We however note the entire amounts expended were from the regular books of the firm and the sources thereof were explained. We also note that the ld. AO has accepted the necessity of sponsorship of technical education of Director’s children for the business purposes of the company. Whether expenses incurred by these candidates abroad for their own personal needs could also be a deductible business expenditure is the main source of dispute. The ld. AO believed that it could not and not wishing to indulge in litigation, the assessee surrendered this amount. However, it is observed that no inaccuracy was found in their accounts or in the claims. In similar circumstances, the Hon’ble

ITA No.694/LKW/2025 A.Y. 2014-15 P.N. International Supreme Court CIT vs. Reliance Petro Products Pvt. Ltd 322 ITR 158 has held that simply making an incorrect legal claim in an income tax return does not constitute furnishing of inaccurate particulars of income or concealment of income under section 271(1)(c) if all relevant details are provided. The Court has held that the assessee must provide false details or concealed facts for a penalty to apply and a wrong claim in law is not equivalent to filing of inaccurate particulars. If the assessee has furnished all relevant details of its income and expenditure and those details are not found to be incorrect, no penalty can be imposed. In our view, the case squarely applies to the facts of the assessee’s case and therefore, relying upon the same, we hold that there is no justification to levy a penalty upon the assessee for concealment of income under section 271(1)(c) only on account of the fact that the Assessing Officer had not found its claim of business expenditure on the personal expenses of sponsored candidates to be deductible. Accordingly, we delete the penalty of Rs. 8,00,000/- levied under section 271(1)(c). 8. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 30.04.2026. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30/04/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR , ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.