2010 (5) TMI 710 - AT - Income Tax

Summary

Issues:
Challenge against penalty under section 271(1)(c) for assessment year 2005-06 based on drug registration charges and fees being treated as deferred expenditure.

Analysis:

The appeal was filed against the confirmation of a penalty under section 271(1)(c) by the Commissioner of Income-tax (Appeals) for the assessment year 2005-06. The assessee had paid fees and drug registration charges totaling Rs. 5,22,591, claiming them as genuine expenses necessary for its pharmaceutical business in foreign countries. The Assessing Officer, however, treated a portion of the expenses as revenue expenditure for the year and the rest as deferred expenditure, leading to the initiation of penalty proceedings. The assessee contended that all details were provided, and the expenses were revenue in nature essential for conducting business in foreign markets. The first appeal upheld the penalty.

The assessee argued that the drug registration charges were revenue expenditure, genuinely incurred, and necessary for selling products in foreign markets. Despite the Assessing Officer treating a portion as revenue expenditure, the penalty was confirmed based on case law indicating that expenses not prima facie allowable could lead to penalties. The Tribunal noted that the fee paid for drug registration was genuine and that a bona fide debate existed regarding whether the expenses were capital or revenue in nature. Citing the Hindustan Steel Ltd. case, the Tribunal emphasized that penalties should not be imposed merely because it is lawful to do so. Ultimately, the Tribunal found that the assessee's case did not warrant a penalty under section 271(1)(c) as there was a genuine debate about the nature of the expenses.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee and deleting the penalty imposed under section 271(1)(c). The decision was based on the genuine nature of the expenses, the bona fide debate regarding their classification as capital or revenue expenditure, and the absence of inaccurate or concealed particulars from the assessee.