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Facts
The assessee's income tax return, which declared a business loss, was selected for scrutiny. The Assessing Officer disallowed prior period expenses, a deduction under Section 54, and excess claims for indexed cost of improvement. Consequently, a penalty under Section 271(1)(c) was imposed for furnishing inaccurate particulars, which was upheld by the CIT(A).
Held
The Income Tax Appellate Tribunal (ITAT), relying on a Supreme Court precedent, ruled that mere disallowances or inadvertent higher claims, without proof of malafide intention or benefit derived by the assessee, do not automatically lead to a penalty under Section 271(1)(c). The Tribunal found no evidence of inaccurate particulars being furnished with malafide intent.
Key Issues
Can a penalty under Section 271(1)(c) be imposed based solely on disallowances and inadvertent claims, without establishing malafide intent or benefit to the assessee?
Sections Cited
143(2), 142(1), 54, 271(1)(c), 148
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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’: NEW DELHI
Assessee by Shri Satish Agarwal, CA and Ms. Anju Sharma, CA Department by Shri Om Prakash, Sr. DR Date of Hearing 25/06/2024 Date of Pronouncement 27/06/2024 ORDER
PER S.RIFAUR RAHMAN, AM:
This appeal has been filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short], dated 29/11/2023 for Assessment Year 2016-17.
The brief facts of the case are, the assessee filed his return of income on 04/08/2016 declaring total business loss of Rs.4,90,125/- and claimed a refund of Rs.8,94,050/-. The case was selected for complete scrutiny under CASS and statutory notices u/s 143(2) and 142(1) were issued and served on the assessee. In the regular assessment following expenditures were disallowed by the Assessing Officer:-
(a) Disallowance of expenses of Rs.1,47,527/- being prior period expenses.
(b) Disallowance of deduction claimed by the assessee u/s 54 of the Act of Rs.5,70,95,075/-.
(c) The assessee has claimed Cost of improvement/indexed cost of improvement and Assessing Officer observed that assessee has obtained valuation report from the registered valuer and as per the value determined, total value of cost of construction and improvement at Rs.1,28,14,764/- and relevant indexed cost of construction and improvement at Rs.6,21,20,000/-. The assessee having 1/4th share in the property, therefore, as per the valuation report submitted by the assessee, the indexed costs of construction and improvement which comes to Rs.1,55,30,000/- whereas the assessee has claimed
Rs.1,71,12,909/-. The difference of the above amounts were disallowed.
(d) Further the Assessing Officer observed that the valuation report submitted by the assessee was not supported by any bills or vouchers raised on the assessee for construction or improvement works, therefore, in absence of any bills or vouchers related to construction works on amount of Rs.62,12,000/- being 10% of the indexed costs of construction and improvement of Rs.6,21,20,000/- is disallowed and assessee is having 1/4th share of the above said disallowance.
Accordingly, further amount of Rs.15,30,000/- was disallowed.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) and Ld. CIT(A) has allowed the claim of the assessee u/s 54 of the Act and sustained the other disallowances made by Assessing Officer.
Subsequently, the Assessing Officer initiated the proceedings u/s 271(1)(c) of the Act. After considering the submissions of the assessee in the penalty proceedings, he imposed the penalty on the disallowance of expenditure of Rs.1,47,527/- and disallowance of Rs.31,35,909/- while claiming the deduction as costs of construction and improvement. The Assessing Officer proceeded to impose the penalty of Rs.6,91,583/- being 100% of the tax alleged to have concealed taxable income by furnishing inaccurate particulars of income.
Aggrieved with the above order, the assessee preferred the appeal before the Ld. CIT(A) and Ld. CIT(A) sustained the additions made by the Assessing Officer.
Aggrieved with the above order, the assessee is in appeal before us raising the following grounds of appeal:-
“1) That the order of the Learned National Faceless Appeal Center is arbitrary, biased and bad in law and facts of the case. 2) That the Learned National Faceless Appeal Center has grossly erred in law and on facts in confirming the penalty of Rs 6,91,583/- u/s 271(1)(c) of the Act. 3) That the Learned National Faceless Appeal Center has grossly erred in confirming the levy of penalty under section 271(1)(c) by equating the addition/ disallowance made by the Assessing Officer on account of excess claim of construction/ improvement and claim of prior period expenses as giving rise to automatic levy of penalty in view of explanation 1 to section 271(1)(c) which is not sustainable in law and facts of the case. 4) That the Learned National Faceless Appeal Center has grossly erred in quoting out of context the selective portions of observations from various judgments to justify the levy of penalty under section 271(1) (c) of the Act, the ratio of which judgements is not applicable in view of the facts of those cases being not parametria with the facts of the appellant's case which penalty is not sustainable in law and fact of the case.
5) That the appellant craves to leave, add, alter or delete the above grounds of appeal at the time of hearing.”
7. At the time of hearing, the Ld. AR briefly submitted on the technical issue on levy of penalty by the Assessing Officer, however, subsequently, it is not pressed.
8. On merits, he brought to our notice where disallowance made by the Assessing Officer mainly on claim of prior period of expenditure, ad hoc disallowance of 10% in claim of costs of improvement without submitting the proper documentation by the valuer and by claiming of indexed costs of construction and improvement as per valuation report of Rs.1,53,30,000/- but by inadvertently claimed Rs.1,71,12,909/-. He submitted that the disallowance made by the Assessing Officer does not call for levy of penalty. In this regard, he relied on the following case laws:-
(i) New Sorathia Engg. Co. vs. CIT [2006] 282 ITR 642 (Gujrat) (ii) CIT vs. Lakhdhir Lalji 85 ITR 77 (Guj). (iii) CIT vs. Kejriwal Iron Stores 168 ITR 715 (Raj.) (iv) CIT vs. Reliance Petropruducts Pvt. Ltd. 322 ITR 158 (v) CIT vs. Nepani Biri Co. Trust (1991) 190 ITR 402, 403 (All.) (vi) Pankaj Kumar Gupta vs. Ito (ITAT Lucknow) ITA No.486/LKW/2016.
On the other hand, the Ld. DR supported the findings of the lower authorities.
Considered the rival submissions and material placed on record, I observed that Assessing Officer has levied the penalty on the disallowance made by him relating to disallowance of prior period expenditure, ad hoc disallowance of non filing of relevant documents in relation to valuation on costs of construction improvement and as per the statements of the assessee, assessee has inadvertently claimed the higher share of indexed costs of construction and improvement. It is submitted that the assessee has not benefited by inadvertently claiming the excess indexed costs of improvement. In this regard, he brought to our notice that assessee has made investment in capital gain and whatsoever the additional interest earned by the assessee are being utilized only in purchasing new assets. After considering the overall submissions of the Ld. AR, I observed that in the case of Reliance Petro Products Pvt. Ltd. (supra), the Hon’ble Supreme Court has held as under:-
“9. We have perused the case record and considered the judicial pronouncements placed before us. At the very outset, we observe that as appearing on record, in the return filed by the assessee the tax on sale of immoveable property was not paid or entered into. However, when notice under section 148 of the Act was issued, assessee himself attended the proceedings and thereafter paid the entire tax on the same date when the assessment order was finalized. This element of behaviour on the part of the assessee shows that when he had filed the return, there was some omission on the part of the assessee to include the tax on the sale of property. However, when he received notice under section 148 of the Act, he was very eager to know what mistake has been committed by him and, therefore, he himself attended the hearing before the Assessing Officer and on coming to know about the amount of tax payable, has immediately paid tax on the same date. He has not even challenged the assessment order and has accepted the assessment as passed by the Assessing Officer and paid due tax. Therefore, there is no loss to the Revenue. The Assessing Officer as well as the Id. CIT(A) were of the opinion that if the notice under section 148 of the Act was not issued, then assessee would have got away with the tax evasion and, therefore, penalty was levied. The spirit of section 271(1)(c) of the Act says "concealment of income or furnishing of inaccurate particulars of income". Now the judicial pronouncements are absolutely clear that if in the return of income certain mistake is there, which is bona-fide and there is also no loss to the Revenue, then in the absence of any material on record, we cannot come to the conclusion that assessee has deliberately concealed the income or has furnished inaccurate particulars of income. In the instant case, nothing is on record to show that there was any malafide intention on the part of the assessee to conceal the income or furnish inaccurate particulars of income and there was an omission while filing the return of income which was rectified through challan on the very date of passing the assessment order. But the entire exercise cannot be brought to the ambit of penalty under section 271(1)(c) of the Act. We are, therefore, of the considered view that this penalty should be cancelled and we order cancellation of penalty.”
From the above decision, it is clear that mere claim does not sustainable in law by itself will not amount to furnishing of inaccurate particulars of income, therefore, additions made by the Assessing Officer relating to prior period and ad hoc disallowance are concern, it is merely claimed by the assessee as allowable expenses and, however, was rejected by the Assessing Officer, therefore, this cannot be a reason for levy of penalty.
Coming to the next issue of claiming additional construction indexed costs of improvement by the assessee, I noticed that assessee having 1/4th share in the property has claimed inadvertently and additional amount of Rs.15,82,909/-. From the records, I observed that assessee has not availed any benefit by such inadvertent claim; therefore, I do not see any reason to levy of penalty by treating that as inaccurate particulars of income, Assessing Officer has to bring to record, how the assessee has benefited by such furnishing of inaccurate particulars.
Accordingly, the appeal filed by the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 27th June, 2024.