Vishnu & Co.Trademarks P. Ltd. New vs. Acit, New Delhi - (Income Tax Appellate Tribunal) (17 May 2022)

Levy of penalty has to be clear as to the limb under which it is being levied

MANU/ID/0694/2022

Direct Taxation

The Assessee has claimed expenses of Rs. 48,53,671 under the "business promotion expenses" which were disallowed by the Assessing Officer (AO) on the ground that, the Assessee had organized two events at ITC Maurya Hotel, New Delhi and incurred expenses on lunch/dinner for 100 and 800 guests respectively and therefore, the Assessee was required to furnish details, however, no reply has been received from it. The Assessee has also failed to prove business expediency to prove the business promotion expenses.

The AO also initiated the penalty for concealment/furnishing inaccurate particulars of income of Rs. 48,53,671 and ultimately vide penalty order imposed a penalty of Rs. 16,49,763 on the amount of Rs. 48,53,671. The said penalty order was confirmed by the Learned Commissioner against which the Assessee in appeal before present Court.

The Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court held that, the standard proforma of notice under Section 274 of the Act without striking of the irrelevant clause would lead to an inference of non- application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind.

The penalty provisions of Section 271(1)(c) of the IT Act are attracted, where the Assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that, the aforesaid two limbs of Section 271(1)(c) of the IT Act carry different meanings. Therefore, it is imperative for the Assessing Officer to specify the relevant limb so as to make the Assessee aware, what is the charge made against him so that he can respond accordingly.

The AO did not find the claim of the Assessee as maintainable and made the addition and consequently, imposed the penalty which stands affirmed by the learned Commissioner. It is not the case of the Revenue that, the Assessee has acted deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation and therefore mere making of a claim, which is not sustainable in law, would not, ipso facto, amount to furnishing of inaccurate particulars regarding the income of the Assessee and would, therefore, not automatically result in a penalty order against the Assessee. Penalty under consideration levied by the AO and affirmed by the Ld. Commissioner is deleted. Appeal filed by the Assessee stands allowed.

Tags : PENALTY LEVY LEGALITY