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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’: NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI SUDHANSHU SRIVASTAVA
This appeal has been preferred by the assessee and challenges the order passed by the Ld. Commissioner of Income Tax (Appeals) – XXX III, New Delhi wherein vide his order dated 26th May 2014, the Ld. CIT (Appeals) has confirmed the penalty of Rs. 3,28,716/- imposed under section 271 (1) (c) of the Income Tax Act, 1961 for assessment year 2008 – 09.
The brief facts of the case are that the assessment in this case was completed under section 153A of the Income Tax Act, 1961 at Rs. 4,34,53,780 after making an addition of Rs. 10,63,807/- on account of disallowance out of foreign travelling expenses. The assessee preferred an appeal before the Ld. CIT (Appeals) against the quantum addition which was dismissed.
2.1 The assessee did not prefer any further appeal against the quantum addition. Meanwhile, penalty proceedings were initiated against the assessee. It was the assessee’s plea before the AO that the foreign trips were to Gulf countries and Geneva and pertained to the trips made by the two directors and also one of the key employees as well as the wife and children of these three persons. It was submitted that these were the business trips and were not pleasure trips and that there was no dispute that these expenses were actually incurred. It was further submitted that in the present corporate culture, spouses, and at times the children, also accompanied their husband/father on business trips and that it was a matter of common knowledge that in foreign countries, the spouses are also invited in business conferences. It was also submitted that there was no concealment on the part of the assessee and nor was it a case of furnishing of inaccurate particulars.
2.2 However, the assessing officer proceeded to impose penalty of Rs. 3,28,716/- which, on further appeal by the assessee, was confirmed by the Ld. CIT (Appeals). Now, the assessee has approached the ITAT and has challenged the confirmation of the penalty by raising the following ground of appeal –
“1. That under the facts and circumstances, levy of penalty of Rs. 3,28,716/- u/s 271(1)(c) of the Act is absolutely unsustainable in law as well as on merits.”
The Ld. Authorised Representative submitted that merely because an expenditure had been disallowed in the hands of the assessee, it does not automatically make it eligible for levy of penalty under section 271 (1) (c) of the Income Tax Act, 1961, especially, as no evidence had been adduced to establish that the assessee had either concealed its income or furnished inaccurate particulars thereof. It was also submitted that all the relevant details and information had been duly furnished during the course of assessment proceedings and that no false or incorrect details had been filed. It was also submitted that the expenses were claimed as a deduction as the expenditure was genuinely incurred and that merely because there was a disallowance out of expenses, the penalty could not be imposed. Reliance was placed on a plethora of case laws and it was submitted that even if the claim for deductibility of expenses was not accepted, it was not a fit case for the imposition of penalty.
The Ld. Senior Departmental Representative read out extensively from the order of the Ld. CIT (Appeals) and submitted that as the expenses related to the foreign travel of the spouses/children were not allowable, the claim of these expenses as a deduction was blatantly wrong and it was very much obvious that the same was a deliberate attempt by the assessee to reduce its taxable income by making a wrong claim of expenses by filing inaccurate particulars. It was submitted that the penalty had been correctly imposed and that the same should be upheld.
We have heard the rival submissions and perused the material on record. The Hon’ble Supreme Court, in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26, had laid down
the position of law by holding that the Assessing Officer is not bound to levy penalty automatically simply because the quantum addition has been sustained. Also, in the case of CIT v. Khoday
Eswara (83 ITR 369) (SC), it is held that penalty cannot be levied solely on basis of reasons given in original order of assessment.
The Hon’ble Supreme Court has reiterated the law in case of Dilip N. Shroff v. Jt. CIT reported in 291 ITR 519 by holding in Para 62 that finding in assessment proceedings cannot automatically be adopted in penalty proceedings and that the authorities have to consider the matter afresh from different angle.
5.1 Further, the statute requires a satisfaction on the part of the Assessing Officer. He is required to arrive at a satisfaction so as to show that the assessee concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the Department. While considering whether the assessee has been able to discharge his burden, the Assessing Officer should not begin with the presumption that he is guilty. Since the burden of proof in penalty proceedings varies from that in the assessment proceedings, a finding in the assessment proceedings that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceedings constitutes good evidence in the penalty proceedings. In the penalty proceedings the authorities must consider the matter afresh as the question has to be considered from a different angle. It is important to keep in mind the fundamental legal proposition that Assessment proceedings are not conclusive. Assessment proceedings and penalty proceedings are separate and distinct. Findings in Assessment proceedings don’t operate as res judicata in penalty proceedings as was held by the Hon’ble Bombay High Court in CIT vs. Dharamchand L. Shah reported in 204 ITR 462 (Bom).
Further, in Vijay Power Generators Ltd vs. ITO (2008)6 DTR 64
(Del) it was held that “It is well settled that though they constitute good evidence, they do not constitute conclusive evidence in penalty proceedings.”
5.2 It is well settled that during penalty proceedings, there has to be a reappraisal of the very same material on the basis of which the addition was made and if further material is adduced by the assessee in the course of the penalty proceedings, it is all the more necessary that such further material should also be examined in an attempt to ascertain whether the assessee concealed his income or furnished inaccurate particulars. Thus, under penalty proceedings assessee can discharge his burden by relying on the same material on the basis of which assessment is made by contending that all necessary disclosures were made and that on the basis of material disclosed there cannot be a case of concealment of income or furnishing inaccurate particulars of income. Further, if there is any material or additional evidence which was not produced during assessment proceedings same can be produced in penalty proceedings as both assessment and penalty proceedings are distinct and separate.
5.3 In CIT vs. M/s Sidhartha Enterprises reported in 184
Taxman 460 (P & H), it was held that the judgment in Dharmendra Textile cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. Even so, the concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default.
5.4 Reverting to the facts of the present case, the penalty order is woefully silent on the issue as to how this satisfaction of furnishing of inaccurate was arrived at. The quantum addition on which the penalty has been imposed pertains to disallowance out of foreign travel expenses but the Ld. CIT (A) has not examined the issue in detail but has simply confirmed the penalty by relying on the findings of the AO and the Ld. CIT (A) in the quantum proceedings. There is no finding by the authorities below on the issue as to how the ‘furnishing of inaccurate particulars’ has come to be established so as to warrant the imposition of penalty. Thus, it is apparent that the penalty has been imposed as an automatic outcome of the confirmation of the quantum addition. Considering the entirety of the circumstances, in our view the impugned disallowance does not invite the provisions of Section 271(1)(c) of the Act. Accordingly, we set aside the order of the Ld. CIT (Appeals) and direct the AO to delete the entire penalty.
In the final result, the appeal of the assessee is allowed.
The order is pronounced in the open court on 31st October, 2017.