The Delhi Income Tax Appellate Tribunal (ITAT) while quashing the penalty held that the proceedings had been initiated by the assessing officer without requisite satisfaction.
Ritu Kamal Kishore counsel appeared for the assessee and P. Praveen Sidharth, counsel for the revenue.
Assessee A2Z Maintenance and Engineering Services Limited is engaged in providing engineering services etc. The search and seizure operation under Section 132 of the Income Tax Act was conducted on the premises of the group cases including the assessee. The assessing officer observed that the assessee claimed a deduction towards share issue expenses the assessing officer alleged that the expenses incurred are in the nature of capital expenditure.
After verifying, the assessing officer thus eventually disallowed the claim of deduction under Section 35D of the Income Tax Act. The Assessing Officer thereafter observed in the assessment order that the assessee has concealed his income or has filed inaccurate particulars to the extent of this amount and therefore liable for initiation of penalty under Section 271(1)(c) of the Income Tax Act.
Aggrieved, the assessee preferred to appeal before the CIT(A) for cancellation of the penalty. The assessee however did not get any relief from the CIT(A). Further aggrieved, the assessee preferred to appeal before the Tribunal.
Counsel for the assessee submitted that without making requisite satisfaction the assessing officer initiated the penalty. Counsel for the revenue supported the decision of the lower authorities.
The tribunal observed that the imposition of penalty on account of mere disallowance of expense is prima facie unjustified and that bona fide mistakes could not be subject to penalty.
Therefore, It is an undisputed fact that the assessee has disclosed all material facts and was under bona fide belief that it is entitled to a deduction of share issue expenses under the provisions of Section 35D of the Income Tax Act.
Moreover, a penalty has also been imposed towards rent expenses of guest houses on the ground that two houses are locked at the time of post-search inquiry and have not been used as guest houses.
It was observed that the penalty has been levied on the ground of disallowance of rent expenses due to the non-usage of such guest houses.
Thereafter the tribunal comprising Pradip Kumar Kedia, Accountant Member and Anubhav Sharma, Judicial Member allowed the appeal filed by the assessee and held that
“The exercise of power for initiating penalty under Section 271(1)(c) Income Tax Act is dependent upon a categorical satisfaction of the Assessing Officer in the course of the assessment proceedings towards the nature of alleged default which is clearly absent in the present case and consequently the penalty proceedings initiated without requisite satisfaction is a nullity.”
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