Penalty u/s 271 Valid Where Claims Lack Substantiation: ITAT Upholds ₹1.38 Cr Penalty on Multiple Additions [Read Order]

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench has upheld penalty on an assessee’s account under Section 271(1)(c) of the Income Tax Act 1961,reaffirming that claims not backed by any substantiation or bona fide explanation attract penalty.However, in partial granting relief to the assessee the ITAT set aside penalty on an issue in favour of the assessee in quantum proceedings.

The assessee Soma Textiles & Industries Ltd had been subject to penalty proceedings on additions relating to Arm’s Length Price (ALP) adjustments, disallowance of Global Depository Receipt[GDR] issue expenses,miscellaneous expenses,foreign exchange gains and Tax Deducted At Source[TDS] reconciliation differences.

The Assessing Officer had levied a penalty of ₹1.38 crore on charges of concealment of income and furnishing of inaccurate particulars of income, which was confirmed by the Commissioner of Income tax CIT(A).

The assessee claimed that all information had been disclosed and that the claims had been made in good faith and therefore, the provisions of Section 271(1)(c) did not apply. It was also argued that the penalty should not be levied merely because the addition had been confirmed.

However, the Revenue's argument was that the assessee had not substantiated the claim and that certain incomes had been offered only during the assessment proceedings.

The Tribunal comprising Siddhartha Nautiyal (Judicial Member) and Narendra Prasad Sinha (Accountant Member) held that the ALP adjustment which had been upheld in quantum had not shown due diligence as required by Explanation 7 and therefore, the penalty had to be levied.

Further the Bench also held that the disallowance of expenses on GDR had also not been in accordance with settled law and this negated the claim of the assessee.Therefore,the penalty on miscellaneous expenses had also been upheld as there was no evidence to support the claim.

Accordingly,penalty on foreign exchange gain and TDS mismatch was sustained as the assessee admitted non-disclosure in the return and failed to provide a credible explanation. However, the Tribunal deleted the penalty on foreign exchange derivative loss since the corresponding quantum addition had been allowed.

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