Mere Disallowance of claim cannot be made the basis for levying Penalty under section 271(1)(c) of the Income Tax Act.
As per section 271(1)(c) of income tax act, 1961, assessing officer or CIT(A) or CIT in the course of proceedings under this Act may impose penalty in the range of 100% to 300% of the amount of tax sought to be evaded. The penalty can be impose if he satisfy that any person concealed the particulars of such income or furnished inaccurate particulars of such income. This penalty is in addition to the tax payable by assessee.
Further, there is also a concept of deemed concealment laid down under explanation 1 to section 271(1)(c). the explanation 1 is triggered when the person :-
- Fails to offer an explanation or
- Offers an explanation which is found to be false, or
- Offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him],
So the question is mere the claim made by a person in his return which disallowed by revenue, is comes under the ambit of section 271(1)(c) / explanation 1 of to section 271(1)(c).
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) and the same is already an established principal laid down by the Apex Court in the case of Commissioner of income Tax, Ahmadabad V Reliance Petroproducts Pvt. Ltd., 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. The word “inaccurate particulars” mean that the details supplied in the return are not accurate, not exact or correct, not according to truth or erroneous.
It was up to the authorities to accept its claim in the return or not. It was firmly held by the Hon’ble Supreme Court of India that, merely because the claim was not accepted by the revenue, cannot tantamount to furnishing inaccurate particulars. The conditions u/s 271(1) (c) must exist before any penalty is imposed.
So in the absence of a finding by an assessing officer that any details supplied by assessee in its return were found to be incorrect or erroneous or false, there would be no question of inviting penalty under section 271(1)(c).
Relying on the judgment of Reliance Petroproducts pvt ltd. and Dilip N. Shroff and Dharmendra Textile Processors as 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.