The Income Tax Appellate Tribunal (ITAT), Delhi Bench has held that disallowance of expenditure on an estimated or notional basis does not attract penalty provision under section 271.
During the scrutiny assessment of the appellant, Bhartiya City Developers Pvt. Ltd., the Assessing Officer disallowed Rs.8,25,747/- in the light of the provision of Section 14A read with Rule 8D(2)(iii) of the Income Tax Rules and imposed a penalty of Rs.2,47,724/- under section 271(1)(c). The CIT(A) confirmed the assessment order. The aggrieved appellant approached ITAT.
The Explanation-1 to Section 271(1)(c) of the Act, makes it clear that the statute visualizes the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. While the claim towards expenditure may not be found acceptable in quantum proceedings, such disallowance per se cannot invite rigors of penalty.
The Coram of Mr. Kul Bharat, Judicial Member, and Mr. Pradip Kumar Kedia, Accountant Member observed that to attract penalty under Section 271(1)(c) of the Act, there must be concealment by the assessee of particulars of his income or furnishing of inaccurate particulars. The disallowance of certain expenditures on an estimated basis on some notional basis is neither the concealment of income particulars of income nor furnishing of inaccurate particulars.
The Tribunal further observed that the claim of expenditure towards exempt income made, at best, be taken as an erroneous claim by the assessee. Such a claim, although, may not be maintainable for quantum proceedings, however, would not invite penalty in the absence of falsity per se.
The Tribunal by relying on the decision of the Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd, set aside the assessment order and directed the Assessing Officer to delete the penalty.
Mr. Amit Goel, CA, and Mr. Nipun Mittal, CA appeared on behalf of the appellant and Mr. Kanav Bali appeared on behalf of the respondent.
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