2011 (11) TMI 694 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty levied u/s 271(1)(c) of the Income Tax Act, 1961.

Summary:

Issue 1: Deletion of Penalty u/s 271(1)(c)

The revenue's appeal challenges the CIT(A)'s order deleting the penalty levied by the Assessing Officer (AO) u/s 271(1)(c) of the Income Tax Act, 1961. The AO had imposed a penalty of Rs. 4,38,550/- for the Assessment Year 2004-05, citing the disallowance of warranty expenses and adjustments in transfer pricing.

Warranty Expenses:

The assessee, engaged in marketing and distribution of printers, claimed warranty expenses including a provision of Rs. 7,11,823/-. The AO disallowed this provision, arguing that expenses in the nature of provisions are not allowable. The assessee contended that the provision was made on a scientific basis and relied on past experiences, supported by the Tribunal's decision in Voltas Ltd. Vs. DCIT and the Hon'ble Apex Court's ruling in Rotork Controls India (P) Ltd. Vs. CIT.

The Tribunal noted that the assessee had disclosed complete particulars regarding the warranty provisions and made a claim that was not sustainable in law, but this did not amount to furnishing inaccurate particulars of income. The Tribunal relied on the Hon'ble Apex Court's decision in Reliance Petro Product P. Ltd., which held that merely making an unsustainable claim does not attract penalty u/s 271(1)(c).

Transfer Pricing Adjustments:

The AO made adjustments of Rs. 5,10,600/- to the assessee's international transactions, adding costs for various expenses. The Tribunal found that these expenses would have been incurred by the Associated Enterprise (AE) regardless of services rendered and thus should not form part of the normal cost for transfer pricing adjustments. The Tribunal held that this was a debatable issue and the facts were available before the lower authorities, similar to the warranty provision issue.

In conclusion, the Tribunal upheld the CIT(A)'s order deleting the penalty levied by the AO on both issues, stating that the assessee had not furnished inaccurate particulars of income.

Result: The appeal of the revenue is dismissed.

Order pronounced in open court on 04.11.2011.