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2026 Supreme(Online)(ITAT) 13150
INCOME TAX APPELLATE TRIBUNAL (HYDERABAD BENCH)
Manjunatha G., Accountant Member, Ravish Sood, Judicial Member
Kalburgi Cement Private Limited – Appellant
Versus
Deputy Commissioner of Income Tax – Respondent
ITA No.2067/Hyd/2025
For the Appellants/Petitioners: Shri M V Prasad
For the Respondents: Dr. Sachin Kumar
Penalty under Section 271(1)(c) of the Income Tax Act is not automatic upon the disallowance of a claim; it cannot be imposed where the assessee has furnished all material facts and the claim, though rejected, is supported by judicial precedents and reasonable legal interpretation.
Headnote:(A) Income Tax Act, 1961 - Section 271(1)(c) - Penalty for furnishing inaccurate particulars - Assessee claimed deductions for mine restoration expenses and additional depreciation on railway sidings - Claims disallowed by AO - Whether penalty is automatic upon disallowance - Held, penalty is not automatic; merely making an unsustainable claim does not amount to furnishing inaccurate particulars where full disclosure was made and facts are supported by judicial precedents. (Paras 12, 13, 14, 15)
Facts of the case:
The assessee company filed its return declaring a loss. The AO made disallowances regarding mine restoration expenses and excess depreciation on railway sidings. Penalty was levied under Section 271(1)(c) for furnishing inaccurate particulars. CIT(A) upheld the penalty. The assessee appealed before ITAT.
Findings of Court:
The Tribunal found that all details regarding the claims were disclosed and supported by judicial precedents. It held that the assessee's decision not to contest the disallowance in quantum proceedings does not constitute an admission of furnishing inaccurate particulars or concealment of income.
Issues: Whether penalty under Section 271(1)(c) is sustainable when the taxpayer makes a claim supported by judicial precedents, and whether non-contesting of disallowances constitutes an admission justifying penalty.
Ratio Decidendi: Mere disallowance of a claim does not automatically lead to a penalty under Section 271(1)(c) if the assessee has furnished all correct particulars and the claim was based on legal interpretation and prevailing judicial precedents.
Result: Appeal allowed.
आदे श / ORDER
PER RAVISH SOOD, J.M.
The present appeal filed by the assessee company is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 29/09/2025, which in turn arises from the penalty order passed by the Assessing Officer (for short, “AO”) under Section 271(1)(c) of the Income Tax Act, 1961 (for short, “Act”) dated 11/01/2022 for A.Y. 2016-17. The assessee company has assailed the impugned order on the following grounds of appeal:
“1. On the facts and circumstances of the case, the Penalty order passed by Assessing Officer which is confirmed by Learned CIT(A) is not justified according to law and facts.
2. On the facts and circumstance of the case, Learned CIT(A) is not justified in confirming the penalty U/s 271(1)(c) of Rs.79,68,500/-.
3. On the facts and circumstance of the case, Levy of penalty by Assessing Officer, which is confirmed by Learned CIT (A) is bad in law as no satisfaction has been drawn in the Assessment order for furnishing inaccurate particulars of income or for concealment of income.
4. On the facts and circumstance of the case, Learned CIT(A) is not justified in confirming the penalty without observing the fact that disallowance of expenditure does not attract levy of penalty.
5. On the facts and circumstance of the case, Learned CIT (A) has not observed the fact that levy of penalty by passing the order is barred by limitation.
6. On the facts and circumstances of the case, Learned CIT(A) has not appreciated the fact that mere acceptance of additions in the Assessment proceedings does not lead to the levy of a penalty.
7. On the facts and circumstance of the case, Learned CIT(A) has not appreciated the fact that the Assessing Officer has not brought on record on what circumstances the appellant is prone to furnished inaccurate particulars of income.
8. Any other ground or grounds that may be urged at the time of hearing of the appeal.”
Succinctly stated, the assessee company, which is engaged in the business of manufacturing and sale of cement, had filed its return of income for AY 2016-17 on 28/11/2016, declaring a loss of Rs. 170,64,07,015/-. Thereafter, the AO framed the assessment vide his order passed under Section 143(3) of the Act dated 19.12.2018, determining the loss at Rs. 167,12,11,932/- after, inter alia, making certain additions/disallowances, viz. (i). disallowance of provision for mine restoration expenses: Rs. 45,97,870/-; and (ii). Disallowance of excess depreciation/additional depreciation on railway sidings/bridges: Rs. 1,84,27,214/-.
The AO, after culminating the assessment proceedings, levied a penalty of Rs. 79,68,500/- under Section 271(1)(c) of the Act, alleging furnishing of inaccurate particulars of income in respect of the aforesaid additions.
Aggrieved, the assessee company assailed the penalty imposed by the AO under Section 271(1)(c) of the Act of Rs. 79,68,500/- before the CIT(Appeals), who upheld the same.
The assessee company aggrieved with the CIT(Appeals) order has carried the matter in appeal before us.
We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. Authorized Representatives of both parties to drive home their respective contentions.
Shri MV Prasad, CA, the Ld. Authorized Representative (for short, “AR”) for the assessee company, at the threshold of hearing, submitted that the penalty imposed by the AO under Section 271(1)(c) is wholly unsustainable both on facts and in law. It was submitted that all particulars relating to the claim of mine restoration expenses, as well as the claim of additional depreciation on railway sidings, were fully and truly disclosed by the assessee company in its return of income, tax audit report, and accompanying statements. Elaborating furt
