Mere Disallowance Of Expenditure Or Enhancement Of Returned Income Does Not Ipso Facto Call For Penalty U/s 271(1)(C): Delhi ITAT

The Bench comprising of Kul Bharat (Judicial Member) and Pradip Kumar Kedia (Accountant Member) observed that “No allegation towards the nature of default has been specified. No satisfaction contemplated under Section 271(1B) has been found towards the nature of default qua the disallowance. In the absence of any firm satisfaction towards alleged default, the AO is not entitled to invoke Section 271(1)(c) of the Act.” (Para 7.2)

“Merely because the advances received has been treated as income accrued to the assessee in the year of its receipt, the probative value of the explanation offered in this regard cannot be outrightly rejected. It is a case of mere preponement of year of taxation and is broadly tax neutral”, added the Bench (Para 9)

As per the brief facts of the case, the assessee seeks to challenge the penalty imposed on the disallowance of the expense amounting to Rs.32,95,228/- and additions on account of unearned income of Rs.102,33,994/-. The AO has imposed the penalty of Rs.45,98,566/- on such additions.

The Bench noted that the AO in the assessment order has merely observed that penalty proceedings u/s 271(1)(c) are initiated separately.

The Bench observed that while the additions have been confirmed in the quantum proceedings, such disallowance ipso facto does not lead to a conclusion that the issue is not arguable.

The Bench further observed that while the additions made have been sustained in quantum proceedings, the explanation offered by the assessee is somewhat plausible when tested on the touchstone of Section 271(1)(c).

The Bench found that the assessee has made proper disclosure of the relevant facts and therefore, particulars in itself placed before the AO cannot be said to be inaccurate per se.

The Bench agreed with the contention on behalf of the assessee that discretion vested with the AO under Section 271(1)(c) ought to have been exercised in favour of the assessee.

The Bench also explained that imposition of penalty under Section 271(1)(c) is not automatic and should not be imposed merely because it is lawful to do so.

Some degree of plausibility can be assigned to the plea raised on behalf of the assessee, added the Bench.

Therefore, ITAT allowed the assessee's appeal under the mitigating circumstances.

Counsel for Appellant/ Assessee: None

Counsel for Respondent/Department: Vivek Kumar Upadhyay

Case Title: Dion Global Solutions Limited verses ACIT

Case Number: I.T.A. No.7789/DEL/2018

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