The Income Tax Appellate Tribunal, Delhi division has recently ruled that mere disallowance of expenditure claimed by the assessee will not contribute to ‘concealment of income’ and therefore, penalty under section 271 of the Income Tax Act, 1961 will not be sustained. The Tribunal was considering an appeal filed by the assessee challenging the penalty proceedings initiated against them.
The grievance of the assessee is that the penalty proceedings were initiated on the ground that assessee has concealed income. The assessee challenged the said proceedings on the ground that since the AO made an addition by taking net profit at 10% which was reduced to 4% by the ITAT, it does not amount to concealment of income. The assessee further contended that disallowance of expenditure of Rs.32,658/-claimed by the assessee also does not amount to concealment of income.
On appeal, the Commissioner of Income Tax also confirmed the order. The matter was further brought before the Appellate Tribunal.
The Court found that to impose penalty under section 271(1)(c) of the Act, two conditions must be satisfied. Firstly, theassessee must have furnished inaccurate particulars of income andsecondly, the assessee must have concealed particulars of income from the tax authorities.
While rejecting the impugned order, the Tribunal observed that “First of all, so far as question of applying the gross profit rate of 10%, further reduced to 4% by the Appellate Tribunal, after rejecting the books of account by the AO on estimation basis is concerned, the same does not amount to concealment of income by the assessee because the assessee during the assessment proceedings put forth book results, audited balance sheets, etc. before the AO but the same has been rejected by AO by invoking the provisions contained u/s 145(2) of the Act. In case, books of account have been rejected, the AO has to assess the income on the basis of comparative study and not on the basis of guesswork and estimation. So, to our mind, this cannot be concealment of income by any stretch of imagination even.”
The Tribunal further added that, “disallowance of expenditure of Rs.32,658/-, for argument sake even if assumed to be wrongly claimed by the assessee, does not amount to concealment of income in any manner, because allowability of expenditure claimed by the assessee is to be examined by the AO and mere claim of assessee is not concealment.”
Read the full text of the order below.
