Penalty u/s. 271(1)(c) Cannot be Levied Merely because Claim was not Accepted or not Found to be Acceptable: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the penalty under Section 271(1)(c) of the Income Tax Act 1961 could not be levied merely because the claim was not accepted or not found to be acceptable.

The assessee, Sabharwal Food Industries Pvt. Ltd., had filed an appeal against levying of penalty as the payment in cash was made for hospital bills as the hospitals did not accept payment through cheques. 

The assessee had claimed expenditure on account of medical expenditure on the employees and directors of the company. But said claim was disallowed by the Assessing Officer by observing that the assessee had made payment in cash in excess of Rs. 20,000/- on various occasions and made disallowance. Assessee did not carry the matter and paid all due taxes etc. thereon terminating the litigation on this issue. However, the Assessing Officer imposed a penalty.

Rohit Tiwari, on behalf of the assessee submitted that the assessee had not furnished inaccurate particulars of income as the assessee had fully reported and disclosed all the particulars on the bona fide and reasonable belief.

He further submitted that the claim of assessee was dismissed on technical ground of section 40A(3) of the Income Tax Act, which had not amounted to either furnishing of inaccurate particulars of income or concealing of particular of income therefore penalty under Section 271(1)(c) of the Income Tax Act.

Rajareswari, who appeared on behalf of the revenue submitted that the assessee had made payment in cash in excess of Rs. 20,000 on various occasions therefore in consequence the said disallowance penalty under Section 271(1)(c) of the Income Tax Act had rightly been made.

The Bench relied upon the decision in Reliance Petroproducts (P) Ltd. vs. CIT wherein it was held that merely because the claim of assessee was not accepted for not found to be acceptable by the revenue authorities the penalty under Section 271(1)(c) of the Income Tax Act, could not be levied on the assessee. 

The two-member Bench of Chandra Mohan Garg, (Judicial Member) and Pradip Kumar Kedia, (Accountant Member) deleted the penalty holding that  “Assessing Officer dismissed claim of expenditure of assessee on account of violation of section 40A(3) of the Income Tax Act, without raising any other allegation or ground of dismissal and as the assessee disclosed and recorded entire claim on medical emergencies in its books of accounts then neither it can be alleged that assessee has furnished inaccurate particulars of income or has concealed particular of its income.”

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