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In a recent decision pronounced by Hon’ble ITAT (Mum) on 30-07-2014 in case of Salman Khan vs. ACIT wherein the assessee had claimed various legal expenses incurred for defending himself in various criminal proceedings pending in the court. The AO disallowed the claim on the premise that the said expenses are personal in nature and thus cannot be allowed. However, the Hon’ble CIT(A) allowed the claim of the assessee and held that such expenses was necessary to protect and preserve his profession. Further, Hon’ble ITAT disallowed the claim of the assessee and upheld the order of the AO. The AO then issued notice and imposed penalty u/s 271(1)(c).

It was argued that the said additions were made on the wrong interpretation of law made by the assessee. Further, the non-acceptance of legal claim by Hon’ble ITAT does not amount to concealment of income. The CIT(A) upheld the imposition of penalty on the assessee. The appeal was made before the Hon’ble ITAT.

The assessee defended himself by stating that the assessee was arrested by local police on the grounds that he had shot endangered specie during the flm shoot of ‘Hum SathSathHai’. Hence such expenses were incurred which was necessary to continue the movie.  Further, the assessee relied on the decision of Reliance Petroproducts Ltd. [322 ITR 158].

In the case of Reliance Petroproducts Ltd., (supra), the Hon’bleSupreme Court held that in order to be covered by the provisions of section271(1)(c), there has to be concealment of particulars of income by theassessee or furnishing of in-accurate particulars of his income. Explainingfurther, the Hon’ble Supreme Court observed that when no information givenin the return is found to be in-correct or in-accurate, the assessee cannot beheld guilty of furnishing in-accurate particulars of its income and unless thecase is strictly covered by the provision, the penalty cannot be imposed. It isfurther held that where there is no finding that the particulars furnished bythe assessee in its return are in-accurate or erroneous or false, there is noquestion of imposing penalty u/s 271(1)(c) of the act merely because the claimof the assessee for deduction is disallowed in the quantum proceedings. Hence, the penalty was cancelled.

By Aditya Singhania & Nischal Agarwal

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