No penalty leviable unless the conduct of the assessee is found to be contumacious

Last updated: 23 July 2021

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The Income Tax Appellate Tribunal ruled that a penalty cannot be levied simply because an assessee's expenditure was disallowed. Relying on Supreme Court precedent, the Tribunal found that the taxpayer's claim, even if incorrect, was not inherently bogus. Therefore, a disallowance alone does not prove the furnishing of inaccurate particulars or concealment of income, and penalties should only be imposed if the assessee's conduct is found to be contumacious.

Court :
Income Tax Appellate Tribunal, Mumbai

Brief :
In M/s. Aanya Real Estate Pvt. Ltd. v. Deputy CIT [ITA No. 115/Mum/2020 decided on July 20, 2021] M/s. Aanya Real Estate Pvt. Ltd. ('the Appellant') is a real estate company. During assessment, it was noted that the Petitioner had disclosed payment for Exchange Server Services as revenue expenditure instead of capital expenditure.

Citation :
ITA No. 115/Mum/2020 decided on July 20, 2021

In M/s. Aanya Real Estate Pvt. Ltd. v. Deputy CIT [ITA No. 115/Mum/2020 decided on July 20, 2021] M/s. Aanya Real Estate Pvt. Ltd. ('the Appellant') is a real estate company. During assessment, it was noted that the Petitioner had disclosed payment for Exchange Server Services as revenue expenditure instead of capital expenditure.

Subsequently, a show cause notice was issued under Section 274 of the Income Tax Act, 1961 ('the IT Act') read with 271(1)(c) of the IT Act and penalty was levied. Upon Appellant's appeal CIT(A) confirmed the penalty.

The Hon'ble Income Tax Appellate Tribunal, Mumbai relied on the exposition of Hon'ble Supreme Court in the case of CIT v. Reliance Petro Products Pvt. Ltd. [(2010) 322 ITR 158 (SC)] and held that the Appellant's claim of payment being revenue expenditure, by no stretch of imagination can be said to be ex-facie bogus. Thus, a disallowance of the same cannot lead to the conclusion that the Appellant is guilty of furnishing of inaccurate particulars of income or concealment of income.

Further, stated that an authority may not levy penalty unless the conduct of the Appellant is found to be contumacious [Hindustan Steel Ltd. vs. State of Orissa [(1972) 83 ITR 26 (SC)]].

Allowed Appellant's appeal.

FAQ :

No, a penalty cannot be levied solely because an expenditure has been disallowed. The authorities must also find that the assessee's conduct was contumacious.

Contumacious conduct refers to behaviour that is deliberately disobedient, defiant, or contemptuous of the law or the authorities.

The issue was whether a penalty was leviable on the appellant for disclosing payment for Exchange Server Services as revenue expenditure instead of capital expenditure, which was subsequently disallowed.

No, the Tribunal held that the appellant's claim that the payment was revenue expenditure could not be considered ex-facie bogus.

The Tribunal relied on CIT v. Reliance Petro Products Pvt. Ltd. and Hindustan Steel Ltd. vs. State of Orissa.