Mere disallowance of depreciation would not invite penalty u/s 271(1)(c)

Mere disallowance of depreciation would not invite penalty u/s 271(1)(c)

CA Ayushi Goyal | May 10, 2022 |

Mere disallowance of depreciation would not invite penalty u/s 271(1)(c)

Mere disallowance of depreciation would not invite penalty u/s 271(1)(c)

The Income Tax Appellate Tribunal (ITAT) in the case of Gulshan International Pvt. Ltd. Vs. ACIT held that mere disallowance on account of unutilized expense would not invite penalty u/s 271(1)(c) of the Income Tax Act, 1961 (The Act).

In this matter, the assessee had incurred total expenditure of Rs.13,80,262/- on printing of diaries and calendars. Out of total expenditure of Rs.1380262/-, the Assessing Officer applying the ratio of 10:2 and disallowed  Rs.10,64,394/- for the reason that the papers were purchased in February/March and hence entire expenditure cannot be allowed. The assessee submitted that in view of the proportionate allowance of expenditure for 2 months out of 12 months period, the genuineness of the claim towards advertisement expenses was not in doubt per se. It is thus the case of the assessee that when all the facts were available on record of the Revenue, no allegation towards furnishing of inaccurate particulars of income for the purposes of Section 271(1)(c) was tenable. In counter, Revenue sumitted that the claim of advertisement expenses smacks of bogus expense.

ITAT on hearing both the sides was of the view that the Assessing Officer u/s 271(1)(c) is vested with the statutory discretion in the matter of imposition of penalty. The concept of discretion imports a duty to be fair, candid and not arbitrary. It is trite that every addition or disallowance would not invite penalty merely because it is lawful to do so. The proportionate allowance of advertisement expenses of revenue nature qua the period of use, in itself, is quite debatable. Under the circumstances, there does not appear to be any justifiable reason to impose penalty, alleging default by way of furnishing of inaccurate particulars of income. Therefore, it set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete penalty on this count.

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