Penalty u/s.271(1)(c) — When the explanation offered by the assessee was bona fide but assessee could not establish its case for deduction in quantum proceedings that would not automatically become a case for levy of penalty for concealment or furnishing

26. (2009) 120 ITD 151 (Luck.)

Ashok Grih Udyog Kendra (P.) Ltd. v. ACIT-VI, Kanpur

A.Y. : 2000-01. Dated : 11-4-2008

Penalty u/s.271(1)(c) — When the explanation offered by the assessee was bona fide but assessee could not establish its case for deduction in quantum proceedings that would not automatically become a case for levy of penalty for concealment or furnishing of inaccurate particulars of income.

Facts :

The assessee company filed its return of income for A.Y. 2000-01 claiming an expenditure of Rs.2.37 lakhs as LTC paid to an employee under the head travelling expenses. The AO disallowed the expenditure on the ground that the expenditure had not been incurred for the purposes of business. Further, it was also contended by the Department that if expenses were incurred on account of travelling of the employee, no TDS had been deducted and also that the employee was closely related to the director of the company and hence the expenditure was disallowable u/s.40A(2)(b) as well. The AO also imposed penalty u/s.271(1)(c) for claiming wrong deduction. The CIT(A) confirmed the action of AO. On appeal to Tribunal regarding the allowability of the expenditure, it confirmed the action of AO. Thereafter the assessee preferred appeal for imposition of penalty u/s.271(1)(c). The Tribunal held that there was only difference of opinion regarding the allowablility of expenditure between assessee and department. Although, the disallowance of expenditure has been upheld by the Tribunal, the department has never challenged the genuineness of expenditure. It is well settled law that findings in the assessment proceedings are relevant but not conclusive in penalty proceedings because the considerations that arise in penalty proceedings are different from those that arise in the assessment proceedings. In the instant case, the assessee had disclosed all the material facts necessary for assessment. Consequently, although the expenditure is disallowed, the penalty u/s. 271(1)(c) for concealment or furnishing of inaccurate particulars of income cannot be imposed.