17 June 2024


Income Tax Appellate Tribunal

Assistant Commissioner of Income Tax, New Delhi vs. Ikea Trading (India) Pvt. Ltd.



Direct Taxation

Concealment involves penal action; it has to be proved as a conscious act

Furnishing of inaccurate particulars of income cannot attract the provisions of penalty under Section 271 (1)(c) of IT Act

The present appeal has been filed by the revenue against the order of CIT(A) deleting the penalty under Section 271(1)(c) of the Income Tax Act, 1961 (IT Act). Ikea Trading (India) Private Limited is an Indian Company incorporated in India on 13 t h June 1994. The assessee, a Merchant Exporter, granted a 'Four Star' export house status by the Government of India, is engaged in the trading of home furnishing products. The assessee purchases different home IKEA Trading (India) Pvt. Ltd. furnishing products like carpets, textile and metal etc. from various supporting manufacturers in India and exports the same outside India.

The assessee has sold assets at the Written Down Value (WDV ) of the assets as per company law whereas the TPO held that, the assessee ought to have sold the assets at the value of the WDV of the block of assets as per the IT Act. The WDV as per the IT Act may not be /cannot be the fair market value of the assets. The assets were transferred at the book value as per the audited accounts of the assessee which is a recognized method of providing depreciation. Such sale of assets after valuation and the adjustment by the TPO by resorting to CUP method cannot be a ground for levy of penalty under Section 271(1)(c) of IT Act. The case of concealment or furnishing of inaccurate of particulars of income cannot attract the provisions of penalty under Section 271 (1)(c) of IT Act. Hence, penalty levied has been rightly deleted by the learned Commissioner of Income Tax [CIT (A)].

Regarding the penalty on the issue of disallowance of expenses, the Assessing Officer resorted to disallowance of expenses of Rs.155,44,569 on the grounds that, the claim of the assessee with regard to personnel expenses, operative expenses and finance expenses cannot be accepted as the assessee has not carried out any business activities during the year under consideration.

The assessee is continuing to carry out business activities. The activities undertaken are in connection with terms of contract. The assessee has undertaken the activities of reworking and removing of defects in respect of goods sold earlier and also exported certain goods. The assessee has also filed the statutory returns. The disallowance has been made on the grounds that the business has not been carried out but not on the grounds that the expenses are not related to the business.

Disallowance does not fall under the category of furnishing of inaccurate particulars or concealment of such particulars of income. The Hon'ble Punjab & Haryana High Curt in the case of CIT Vs Ajaib Singh and Co. has held that, disallowance of an expense per se cannot mean that, the assessee has furnished incorrect particulars of its income. Concealment involves penal action. It has to be proved as a conscious act. The essential pre-condition for invoking Explanation 1 to section 271(1)(c) of the IT Act is that, the assessee fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false.

The penalty cannot be sustained in view of the judgment of the Hon'ble Jurisdictional High Court in the case of ACIT Vs Delhi Cloth & General Mills Co. Ltd. wherein it was held that, the mere fact that a claim for expenditure stands disallowed does not by itself lead to the inference that, the assessee had furnished inaccurate particulars in regard to that item. The order of the learned CIT (A) which held that, it a "mere disallowance" of an expense does not warrant a penalty for filing inaccurate particulars of income under Section 271(1)(c) is confirmed. The appeal of Revenue is dismissed.

Tags : Penalty Deletion Legality

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