M/S CENTURY TWENTY ONE PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

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ITA 4385/DEL/2016Status: DisposedITAT Delhi27 October 2016AY 2003-044 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that imposing penalty for disallowance of expenses without disproving their genuineness is not justified. Following the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., the Tribunal found no basis for the penalty.

What were the facts?

The assessee claimed business expenses and municipal taxes, leading to multiple rounds of assessment. In the third round, the assessee agreed to certain disallowances to settle the dispute, with the understanding of no penalty. However, the AO imposed a penalty, which was confirmed by the CIT(A).

What were the issues?

Whether penalty under Section 271(1)(c) can be imposed when the assessee agrees to disallowances to buy peace and the genuineness of expenses is not disproved.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, DELHI BENCHES : SMC-II : NEW DELHI

Before: SHRI R.S. SYAL

For Appellant: Shri V.K. Garg, Advocate
For Respondent: Shri F.R. Meena, Sr. DR
Hearing: 26.10.2016Pronounced: 27.10.2016

This is an appeal by the assessee against the order passed by the CIT (A) on 31.5.2016, confirming penalty of Rs.144,633/- imposed by the Assessing Officer (AO) u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2003-04.

2.

Briefly stated, the facts of the case are that the assessee filed return claiming deduction for business expenses and municipal taxes. The AO did not allow these deductions. In the first round of the proceedings before the Tribunal, the matter was restored to the file of AO for examining the assessee’s claim. In the second round, certain deductions were allowed, but, some disallowances were still sustained. The Tribunal, again, restored the matter to the AO for a fresh decision giving certain directions. In the third round, the assessee agreed to certain disallowances of expenses to buy peace specifically subject to no penalty. The assessment was finalized accordingly. Thereafter, the AO imposed penalty of Rs.1,44,633/- in respect of such disallowances, which came to be affirmed by the ld. CIT(A).

3.

I have heard the rival submissions the perused the relevant material on record. It is noticed that the assessee is engaged in the regular business, which is apparent from a copy of the assessee’s Trading account available on page 3 of the paper book. From such Trading account, it can be seen that the assessee effected sales to the tune of Rs.86,267/- with the corresponding figure of the preceding year’s sales at Rs.83,912/-. The assessee claimed certain expenses which have been disallowed and constituted the bedrock for the imposition of the extant penalty. It has been noticed above that three rounds of assessment took place before the AO. Some of the expenses claimed by the assessee were allowed by the AO in the second round and just to settle the dispute, the assessee agreed to surrender some of the expenses for insufficiency of profits, subject to the condition of no penalty.

Notwithstanding that, the AO has imposed penalty in respect of disallowance of such expenses. I fail to appreciate the view point of the AO and the ld. CIT(A) in imposing and confirming penalty in respect of disallowance of certain expenses without disproving the genuineness of expenses. The Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) has held that simply for the reason that the AO did not find the claim of the assessee to be sustainable in law up to a certain extent, cannot justify penalty u/s 271(1)(c), more so, when particulars furnished by the assessee were not found to be inaccurate. The facts of the instant case as tested on the 3 ratio decidendi of the judgment of the Hon’ble Supreme Court in the above judgment, do not warrant any penalty on such additions. Respectfully following the precedent, I order for the deletion of penalty.

4.

In the result, the appeal is allowed.

The order pronounced in the open court on 27.10.2016.

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