BRILLIANT GEMS,MUMBAI vs. ITO WD 15(2)(3), MUMBAI

During hearing of this appeal, the ld. counsel for the assessee, Shri Kiran Mehta, advanced his arguments which are identical to the ground raised by contending that foreign travelling expenses, which relates to the business of the assessee, were disallowed by the Assessing Officer, on the basis of which, penalty was imposed/sustained, which was wrongly imposed. On the other hand, the ld. DR, Shri Maurya Pratap, defended the levy as well as sustenance of penalty by contending that the assessee made a wrong claim and thus furnished inaccurate particulars of claimed income.

2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee firm is engaged in the business of job work in diamonds, declared total income of Rs.3,08,102/- in its return filed on 17/10/2006. The return was accompanied with tax audit report u/s 44AB, audited profit and loss account, balance sheet, partner’s capital account and other annexure forming part therein. The assessee debited an amount of Rs.2,58,015/- on account of travelling and convenience expenses. The Assessing Officer noted that out of the total expenses of Rs.2,34,392/- an amount of Rs.2,08,829/- represents foreign travelling expenses by the partners. The Assessing Officer disallowed the travelling expenses on the ground that since the assessee was only doing job work, therefore, there was no need to travel abroad. The contention of the assessee was that the partner of the assessee firm visited abroad to explore business 3 M/s Brilliant Gems African countries, from where rough diamonds were imported. The explanation of the assessee was that expenses were incurred for business exigencies. However, the ld. Assessing Officer disallowed the claimed foreign travelling expenses, which were even confirmed up to the Tribunal level. Now, question arises, when quantum addition is confirmed, still penalty can be sustained? Broadly, we are in agreement with the proposition convey to us by the ld.DR but under the facts narrated before us, it can be said that quantum and penalty proceedings are all together different has to be weighed on the touch stone of the facts and the judicial pronouncements. Incurring of expense has not been disputed even by the ld. Assessing Officer. So far as, business exigencies are concerned, it has to be explored by the assessee. Undisputedly, rough diamonds are also imported from various countries including African countries and since the assessee is doing related job work in diamonds, in all possibilities, the assessee might have been lured to do his own work including import, therefore, it cannot be said that the expenses were not incurred for business purposes. It is not the case that the assessee went abroad for pleasure trip. It is the right of every person to expand his business and to explore the possibilities. However, since the addition was sustained even by the Tribunal, therefore, we refrain ourselves to comment upon the merits of the quantum addition. Since the issue before us pertains to confirmation of penalty, therefore, we are of the view, that the disallowance of expenses will not per se does 4 M/s Brilliant Gems not amount to furnishing inaccurate particulars of income. Our view is fortified by the decision from Hon’ble Apex Court in Reliance Petro Products Ltd. 322 ITR 158 (SC), wherein, it was clearly held that mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee. Likewise, the Hon’ble Apex Court in North Land Development and Hotel Corporation 210 taxman 249 (SC) and CIT vs Skyline Auto Products Ltd. 271 ITR 335 (MP), it was held that when mistake is bona fide, penalty is not imposable u/s 271(1)(c) of the Act. In view of the undisputed fact, available on record and the judicial pronouncements discussed hereinabove, we find merit in the contention of the ld. AR., therefore, we direct the Assessing Officer to delete the penalty.