The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that penalty under section 271 (1) (c) of the Income Tax Act,1961 cannot be imposed for unsustainable claims.
The assessee, Indian Drugs & Pharmaceuticals Limited is a public sector sick industrial undertaking that filed its return on 29.11.2014 declaring a loss of Rs. 89,65,48,539/-. The assessee filed a revised computation of income reducing its total loss which was not accepted by the Assessing Officer (“AO”). The AO completed the assessment on a total loss of Rs. 86,69,45,090/- thereby making a disallowance of Rs. 2,96,03,452/- and initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 (“Act”).
On appeal, the CIT(A) confirmed the said addition/ disallowance. The AO imposed the impugned penalty of Rs. 53,48,536/- vide his order dated 28.03.2019 under section 271(1)(c) of the Act against which the assessee filed the appeal before the CIT(A) who deleted the penalty.
It was observed that the penalty order reveals that the impugned penalty has been imposed by the AO for the solitary reason that the assessee made claim for deduction of expenses which were not allowable. The assessee furnished an explanation for claiming a higher deduction of expenses in the revised computation.
A Coram of Shri N K Billaiya, A M and Ms Astha Chandra, J M merely because the claim of the expenses made by the assessee was not allowable as a deduction, it cannot form the basis of levy of concealment penalty.
The Tribunal held that Section 271 (1) (c) penalty cannot be imposed even for making unsustainable claims and dismissed the appeal of the Revenue. Shri Anuj Garg appeared on behalf of the department while none appeared for the assessee.
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