The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, in an appeal filed before it, held that mere disallowance of a claim which is not ex- facie bogus cannot lead to levy of penalty.
The aforesaid observation was made by the Delhi ITAT, when an appeal was filed before it by the Assessee, as directed against the order of CIT (Appeals), New Delhi, dated 16.07.2019, pertaining to the Assessment Year 2007-08.
The grounds of the asseessee’s being that on the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals), New Delhi [CIT(A)], has erred in upholding levy of penalty of Rs.2,30,58,990/- under section 271(1)(c) of Income tax Act, 1961, and further that on the facts and circumstances of the case and in law, the CIT(A) has erred in upholding the levy of penalty u/s 271(1)(c), even though the show cause notice under section 274 of the Income tax Act, did not specify whether the penalty is sought to be levied on the charge of ‘concealment of income’ or ‘furnishing of inaccurate particulars of income’, the brief facts of the case were that the AO had passed the penalty order under section 271(1)(c), imposing penalty of Rs.2,30,58,990/- for AY 2007-08.
In the assessment order, the total income was computed at Rs. 189,91,98,857/-, against the declared income of Rs.170,55,22,175/ and the AO had made the various additions, namely addition of prior period expenses of Rs. 18,76,873/-, disallowance of deduction of QIP expenses of Rs. 14,79,69,000/-, deduction U/s 80IB (10) disallowed to the extent of Rs.68,29,057/-, addition of notional ALV of Rs.2,21,21,466/- u/s 22 & disallowance of completed project expenses of Rs.1,48,80,286/-.
In the first appeal, the CIT(A) vide order dated 30.09.2010, deleted the addition of notional ALV and disallowance of completed project expenses. And out of the disallowance of deduction of Rs.68,29,057/- under section 80IB (10) of the Income Tax Act, relief of Rs.65,09,343/- was allowed. Thus, the disallowance of deduction us 801B (10) was restricted to Rs.3,19,714/-.
Similarly, out of the disallowance of Rs. 14,79,69,000/-, being the expenditure on Qualified Institutional Placement (QIP), relief of Rs.2,03,69,000/- was allowed by the CIT(A) and disallowance was restricted to Rs. 12.76 Cr.
In the second appeal, the ITAT vide order dated 17.8.2017, reduced the disallowance on account of QIP expenses to Rs.6,75,20,806/-. And insofar as the disallowance of completed project expenses of Rs. 1,48,80,286/- and deduction under section 80IB (10) is concerned, the relief allowed by the CIT(A) had been upheld. And addition of notional ALV of Rs.2,21,21,466/- was set-aside to the CIT(A), to decide the issue on factual matrix of respective properties.
The position of disallowances / additions after disposal of appeal by ITATwas that disallowance of QIP expenses was reduced to Rs.6,75,20,806/- & deduction under section 801B (10) was restricted toRs.3, 19,714/-.
On the aforesaid addition, penalty of Rs.2,30,58,990/- was imposed, which was confirmed by the CIT(A). And it is against this order, that the assessee is presently in appeal before Delhi ITAT.
Hearing the opposing contentions of both sides as submitted by Adv Sh. RS Singhvi, & Adv Sh. Satyajeet Goel, on behalf of the assessee, and by Sh. P. Praveen Sidharth, the CIT-DR, on behalf of the Revenue, as well as perusing the materials available on record, the ITAT observed:
“Upon careful consideration, first we address the assessee’s claim regarding jurisdictional defect in as much as in ground no.2, the assessee has stated that there is no striking off of irrelevant part in the notice under section 274 read with section 271(1)(c). Copy of the notice 274 is attached in paper book at page 2. It is evident that the same is an omnibus notice without identifying the charge by striking off of the limb which is not applicable. In such circumstances, the penalty levied cannot be sustained. For this proposition, we rely upon the full bench decision of Hon’ble Bombay High Court in the case of Md. Farhan A. Shaikh vs DCIT. Similar proposition was laid down in Pr. CIT vs Shara India Life Insurance Co. Ltd. Thus, since the penalty notice is omnibus and the charge has not been specified, the penalty is not sustainable.”
“Apart from the above, it is noted that the issue on which penalty has been finally levied is disallowance of expenditure in connection with QIP and disallowance of claim of deduction u/s 80-IB on the ground of allocation of interest expenses. It cannot be said that there is concealment of income or furnishing of inaccurate particulars of income on the issue on which the penalty has been levied. All due disclosures are there. Primary dispute is with respect of nature of expenses i.e., revenue vs capital. These particulars have been completely disclosed in Income Tax Return. Hence if the claim is not accepted merely on the ground of the same being classified capital by Revenue authorities, in such as a situation the case of Reliance Petro products, comes to the rescue of the assessee. In this case it was held that mere disallowance of a claim which is not ex-facie bogus cannot lead to levy of penalty. In these circumstances, in our considered opinion, the assessee deserves to succeed and the penalty levied is hereby deleted”, the coram of Astha Chandra, the Judicial Member, along with Shamim Yahya, the Accountant Member, added.
Thus, the ITAT finally held:
“In the result, this appeal of the assessee is allowed.”
Subscribe Taxscan Premium to view the Judgment
Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates
