"Merely because the Assessee had claimed the
expenditure, which claim was not accepted or was not acceptable to
the Revenue, that by itself would not, attract the penalty under
Section 271(1)(c)" already is an established principal
laid down by the Apex Court in the case of Commissioner of
income Tax, Ahmadabad V Reliance Petroproducts Pvt.
Ltd.1, wherein the Assessee had furnished all
the details of its expenditure as well as income in its return,
which details, in themselves, were not found to be inaccurate nor
could be viewed as the concealment of income on its part. It was up
to the authorities to accept its claim in the return or not. Merely
because the claim was not accepted by the revenue, it was firmly
held by the Hon'ble Supreme Court of India that by any stretch
of imagination, making an incorrect claim in law cannot tantamount
to furnishing inaccurate particulars. The conditions u/s 271(1) (c)
must exist before any penalty is imposed.
In a recent case, the Hon'ble ITAT, Mumbai in the case of
Dr. Francis P Candes V Income Tax
Officer2has taken a similar stand while relying
upon the judgment above and has categorically held that mere
disallowance of any claim will not make the case fit for levy of
Briefly stating the facts of the case, the Assessee has paid a
sum of Rs. 42 Lacs to the Court receiver as per direction of the
Hon'ble High Court for calling bids from the partners for the
purpose of fixing royalty and the higher bidder was to be appointed
as the Agent of the Receiver who shall carry on the business of
Blood bank which was being carried on by the erstwhile Partnership
Firm. On the plea that the Assessee had not deducted tax at source
u/s 194J on the payment of royalty by invoking provisions of
Section 40 (a) (ai), the AO disallowed payment for non
It was the stand of the Assessee's representative that
penalty and quantum proceedings are separate and distinct
proceedings, therefore mere disallowance in quantum proceedings
cannot be made reason for levying penalty u/s 271(1)(c). However on
the other hand, the Representative of the revenue pleaded that
there was a failure on the part of the Assessee to deduct tax at
source and therefore the AP was justified in levying the penalty.
The CIT [A] confirmed the order of the AO, and then the Assessee
appealed before the Hon'ble ITAT.
The Hon'ble ITAT, Mumbai after hearing both the sides was
very strong on the point that there is no dispute on the fact
quantum and penalty proceedings are separate and distinct. Relying
on the judgment of Reliance [Supra] and Dilip N.
Shroff3and Dharmendra Textile
Processors4as there was full disclosure made by
the Assessee with respect to the expenditure claimed, therefore,
mere disallowance of the legal claim cannot be made the basis for
levy of penalty u/s 271(1)(c)of the Act.
1. SLP (C) No. 27161 of 2008
2. ITA No. 5830/Mum/2012
3. 291 ITR 519 [SC]
4. 306 ITR 277 [SC]
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