Penalty is not leviable on Ground of Mere Disallowance of Expenditure Claimed: ITAT Mumbai [Read Order]

Imposing Penalty - ITAT - Taxscan

In a recent ruling, the Mumbai ITAT quashed the penalty proceedings initiated against the assessee under section 271(1)(c) of the Income Tax Act and held that penalty cannot be levied merely on ground that the assessee’s claim for expenditure  was disallowed by the Assessing Officer.

The grievance of the assessee, in the instant case is that the AO initiated penalty proceedings in consequent to the disallowance of deduction claimed for exploration expenditure incurred in the business of prospecting u/s.42(1) of the Income Tax Act. On appeal, the first appellate authority confirmed the addition. Therefore, the assessee challenged the said order in second appeal contending that the penalty is illegal.

The division bench noted that in an earlier case of the assessee, the Tribunal deleted the penalty order relying upon the decision of the Apex Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd.(supra), in which it was held that The mere claim made by the assessee which is found to be unsustainable by the Assessing Officer does not ipso-facto lead to a penalty under section 271(1)(c) of the Income Tax Act.

Following the earlier decision, the bench held that no penalty is leviable for the disallowance of expenditure claimed u/s.52(1) of the Income Tax Act.

Read the full text of the order below.