SATISH KUMAR MITTAL, J. - (1.) THIS order shall dispose of IT Appeal Nos. 600 and 599 of 2007 which have been filed by the Revenue against the order 739/Chd/2004 and 213/Chd/2006 in the case of the respondent assessee for the asst. yrs. 1996 -97 and 1997 -98, respectively.
(2.) IN this case, the assessee filed the return of income for the assessment years 1996 -97 and 1997 -98 in which it had claimed a certain amount as business expenditure incurred by it on studies of Shri Varun Mehta son of a director of the company on the ground that under the agreement between the company and the said Varun, he was to serve the company for at least three years after finishing his studies abroad. The AO disallowed the said expenditure and the same was added towards the income. On appeals by the assessee, the said order become final upto the Tribunal. Thereafter, the Department started proceedings under s. 271(1)(c) of the IT Act, 1961 (hereinafter referred to as referred to as "the Act"), against the respondent for imposing penalty on the imposed a penalty of Rs. 2,75,451 equivalent to 100 per cent of the tax sought to be evaded.
(3.) FEELING aggrieved against the above order, the assessee filed an appeal before the CIT(A), who, vide order dt. 30th the case was not fit for imposition of penalty for concealment under s. 271(1)(c). Against the said order of the CIT(A), while observing as under : ".....The disallowance has been sustained for the reason that the assessee failed to justify that the expenditure incurred was for furtherance of the purposes of its business. Insofar as the proceedings under s. 271(1)(c) are concerned, it is a trite law that the same stands on an altogether different footing than the assessment proceeding. The findings of the Revenue authorities in the assessment proceedings may be relevant but cannot be considered as conclusive for justifying the imposition of penalty under s. 271(1)(c) of the Act. In the instant case, there is no allegation by the AO that the assessee did not disclose the full particulars of the claim. The deduction claimed by the assessee by way of a debit in the P&L a/c cannot be said to be bereft of bona fides. This is for the reason that the assessee incurred expenditure as an obligation under the agreement by way of which the beneficiary was to serve with the assessee company for a stipulated period after finishing his studies in abroad. It is, of course, a different matter that the claim of the assessee has not ultimately found favour with the Revenue authorities but that by itself does not justify an inference that it was lacking in bona fides. It is well -settled legal proposition that mere disallowance of expenditure claimed cannot ipso facto be considered to be giving rise to penal action under s. 271 (1)(c) of the Act unless it is demonstrated that the claim was made as a result of a wilful omission or neglect on the part of the assessee. No such inference is justifiable in the instant case for the reason that the Revenue has not brought on record any material to support the same. A gainful reference can be made to the decision of our co -ordinate Bench of the case of Sai Builders (supra) and Harcharan Singh (supra) in this regard. We may also refer to the judgment of the Delhi High Court in the case of CIT vs. Bacardi Martini India Ltd. (2006) 206 CTR (Del) 250 : (2007) 288 ITR 585 (Del), wherein it has been held that merely because there is a difference of opinion between the assessee and the AO, for allowing or disallowing an expenditure, it cannot ipso facto be said that the assessee had intention to conceal its income or for furnishing inaccurate particulars of its income. In the instant case, we find that the assessee had made the claim on the basis of a credible material and also furnished necessary explanations in the course of assessment proceedings. The reasoning advanced by the assessee has been found to be unsatisfactory and thus rejected by the AO. However, the explanations furnished by the assessee were neither found to be false and nor is there any finding by the AO either in the order of assessment or even during the penalty proceedings that the assessee did not offer complete particulars or details of the expenditure whenever considered necessary by the AO. Therefore, considering the totality of the circumstances and the fact position in the instant case, we do not find it a fit case for imposition of penalty under s. 271 (1)(c) of the Act. Hence, we hereby affirm the decision of the CIT(A) on this aspect.";