DCIT CIR 3(3)(2), MUMBAI vs. XYLON ELECTROTECHNIC PVT. LTD, MUMBAI

ORDER PER N.K. PRADHAN, A.M. The appeal by the Revenue and the cross objection by the assessee are directed against the order of the Commissioner of Income Tax M/s Xylon Electrotechnic CO No. 285/Mum/2017 (Appeals)-8, Mumbai and arise out of the penalty order passed by the Assessing Officer (AO) u/s 271(1)(c) of the Income Tax Act 1961, (the ‘Act’). Assessment Year: 2011-12 2. The 1st & 2nd ground raised by the Revenue in this appeal are against the order of the Ld. CIT(A) deleting the penalty levied by the AO u/s 271(1)(c) on foreign travel expenses. The 3rd ground is against the order of the Ld. CIT(A) deleting the penalty levied by the AO u/s 271(1)(c) on the cessation of liability u/s 41(1) of the Act. The 4th ground is that the Ld. CIT(A) failed to appreciate that the assessee had underestimated its income by furnishing inaccurate particulars of expenses.

3. The AO has imposed penalty u/s 271(1)(c) on the following addition/disallowance: a) Disallowance u/s 40 Rs.31,32,542/- b) Disallowance u/s 2(24)(x) r.w.s. Rs.2,85,900/- 36(1)(va) in respect of delay in payment of employees’ P.F. contribution c) Addition on account of alleged Rs.20,06,198/- cessation of Liability u/s 41(1) d) Disallowance of Certification Rs.1,48,114/- expenses e) Disallowance of foreign travel Rs.22,71,200/- expenditure M/s Xylon Electrotechnic CO No. 285/Mum/2017 We are concerned in this appeal on item at serial no. (c) and (e) only. Briefly stated, the facts of the case are that the AO, during the course of assessment proceedings, found that out of total foreign travel expenses of Rs.24,93,298/-, an amount of Rs.22,71,200/- was incurred by the Director and his family members on foreign visits. Since the assessee failed to submit any evidence to substantiate its claim, the AO disallowed Rs.22,71,200/- treating the same as personal expenditure of the Directors. Also the AO, during the course of assessment proceedings, issued notice u/s 133(6) to the creditors to verify the genuineness of transaction. He noticed that one party had shown balance at Rs.13,63,852/-, whereas as per books of accounts of the assessee, the outstanding amount payable to such party was shown at Rs.20,06,198/-. In response to a query raised by the AO, the assessee submitted that due to assessee’s poor financial condition, the said party had written off the differential amount as not recoverable. However, the AO treated the above amount of Rs.20,06,198/- as liability which has ceased and brought to tax the above sum u/s 41(1) of the Act. Then the AO inter alia levied penalty u/s 271(1)(c) on the foreign travel expenditure of Rs.22,71,200/- and cessation of liability of Rs.20,06,198/- u/s 41(1) of the Act.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find the Ld. CIT(A) has sustained the penalty at serial no. (a) and (b) only. While deleting the penalty levied by the AO M/s Xylon Electrotechnic CO No. 285/Mum/2017 on foreign travel expenses, the Ld. CIT(A) observed that the expenditure or payment through cheques are not disputed. While deleting the penalty levied by the AO on cessation of liability, the Ld. CIT(A) observed that neither there was any concealment nor furnishing of inaccurate particulars by the assessee. Reliance was placed by him on the decision in CIT v. Reliance Petroproducts (P.) Ltd. 322 ITR 158 (SC).

M/s Xylon Electrotechnic CO No. 285/Mum/2017 In Reliance Petroproducts Pvt. Ltd. (supra), the Hon’ble Supreme Court held : “A glance at the provisions of section 271(1)(c) of the Income Tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word “particulars” used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty u/s 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.” 6.1 In the instant appeal, there is no finding by the AO that the details supplied by the assessee in its return are found to be incorrect or erroneous or false, therefore, there is no question of inviting the penalty u/s 271(1)(c). It is not a fit case to impose penalty u/s 271(1)(c) on M/s Xylon Electrotechnic CO No. 285/Mum/2017 disallowance of foreign travel expenses and addition on account of cessation of liability u/s 41(1) of the Act. Respectfully following the decision in Reliance Petroproducts Pvt. Ltd. (supra), we uphold the order of the Ld. CIT(A).