2010 (3) TMI 1130 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for three disallowed claims: payment to AT&T Singapore, fees paid to ROC, and amount received from Birla AT&T.

Detailed Analysis:

1. Penalty on Disallowance of Payment to AT&T Singapore:

The assessee claimed a deduction of Rs. 1,31,58,290/- for payment made to AT&T, Singapore. The A.O. disallowed this claim under Section 40(a)(i) because the tax deducted at source was not paid within the relevant financial year. The CIT(A) upheld the disallowance, reasoning that the liability did not crystallize during the year under consideration. The Tribunal, however, found that the liability had indeed crystallized during the year as the services were rendered within that period. The Tribunal also noted that the disallowance was due to a technical provision and not because the claim was bogus. Consequently, the Tribunal held that the penalty under Section 271(1)(c) was not justified as the claim was made in good faith and all relevant particulars were disclosed.

2. Penalty on Disallowance of Fees Paid to ROC:

The assessee claimed Rs. 33,333/- as revenue expenditure, which was 1/3rd of Rs. 1,00,000/- paid to the Registrar of Companies (ROC) for increasing authorized capital. The A.O. disallowed this claim, treating it as capital expenditure, and the CIT(A) upheld this decision. The Tribunal noted that a similar claim was not disallowed in the previous year, which gave the assessee a bona fide impression that the claim was admissible. Therefore, the Tribunal concluded that the penalty under Section 271(1)(c) was not warranted for this disallowance.

3. Penalty on Addition of Amount Received from Birla AT&T:

The assessee received Rs. 3,98,36,108/- from Birla AT&T for brand building activities but did not include it in its income, treating it as a liability. The A.O. added this amount to the income, and the CIT(A) upheld the addition, considering it revenue in nature. The Tribunal later remanded the issue to the A.O. for fresh examination. Given this remand, the Tribunal held that the basis for the penalty no longer existed and set aside the penalty related to this amount. The Tribunal emphasized that the penalty could only be reconsidered after the fresh assessment.

Conclusion:

The Tribunal allowed the appeal, deleting the penalties imposed under Section 271(1)(c) for all three disallowed claims. The decision was based on the findings that the claims were made in good faith, with full disclosure of relevant particulars, and the issues involved interpretations of law rather than concealment or furnishing of inaccurate particulars.