2009 (12) TMI 695 - AT - Income Tax

Deletion of penalty - nature of expenses- capital expenses or revenue expenses- part of repair & maintenance of plant & machinery and building - Held that - Disallowance was made by the Assessing Officer by treating part of repairs to building and plant and machinery expenses as capital and hence it does not amount to furnishing of inaccurate particulars of income. This issue was of debatable nature and two views are equally probable. Decided in favor of the assessee.

Summary

Issues: Revenue's appeal against deletion of penalty under section 271(1)(c) for assessment year 2005-06.

Analysis:
The Revenue's appeal was directed against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2005-06, specifically challenging the deletion of a penalty of Rs. 2,10,000 imposed under section 271(1)(c) of the Income-tax Act, 1961. The Assessing Officer had completed the assessment, deeming the total income at Rs. 2,09,24,330, with two additions made regarding expenses on repairs being treated as capital in nature. The two additions were Rs. 3,28,496 for repairs of plant and machinery expenses and Rs. 2,51,890 for repairs and maintenance of building. Subsequently, penalty proceedings were initiated under section 271(1)(c) by the Assessing Officer, resulting in the imposition of the penalty. The Commissioner of Income-tax (Appeals) deleted the penalty, leading to the Revenue's appeal before the Income Tax Appellate Tribunal (ITAT) Delhi.

The ITAT Delhi considered the arguments presented by the Departmental representative for the Revenue and the authorized representative for the assessee. The ITAT noted that the Commissioner of Income-tax (Appeals) had deleted the penalty based on the reasoning that the disallowance made by the Assessing Officer did not amount to furnishing inaccurate particulars of income, as the repairs were treated as capital in nature. The ITAT agreed with the Commissioner's decision, emphasizing that the issue was debatable, with two equally probable views. The ITAT found no specific defect in the Commissioner's order pointed out by the Revenue's representative. Additionally, the ITAT concurred with the Commissioner that in the circumstances of the case, the penalty was not justified, considering the nature of the repair expenses as being of revenue nature. The assessee had argued that the expenses were for normal upkeep and maintenance, and due to the small amount involved, a quantum appeal was not filed. The ITAT upheld the Commissioner's order, rejecting the Revenue's ground for appeal and dismissing the Revenue's appeal.

In conclusion, the ITAT Delhi upheld the decision of the Commissioner of Income-tax (Appeals) to delete the penalty imposed under section 271(1)(c), emphasizing the debatable nature of the issue regarding the classification of repair expenses as capital or revenue in the assessment for the year 2005-06.