2009 (4) TMI 969 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271(1)(c) on disallowance of Y2K expenses.
2. Disallowance of foreign travel expenses.
3. Addition of closing stock of consumables/spares.

Summary:

1. Levy of Penalty u/s 271(1)(c) on Disallowance of Y2K Expenses:
The assessee appealed against the CIT (A)'s order confirming the penalty on disallowance of Y2K expenses amounting to Rs. 75,93,724/- u/s 271(1)(c) for the assessment year 2000-01. The assessee argued that the expenses were incurred on EDP systems (computer hardware and software) and were allowable u/s 36(1)(xi). The assessee claimed the deduction based on a Chartered Accountant's certificate, asserting a bonafide belief in the deductibility of such expenses. The CIT (A) held that the claim was not bonafide and upheld the penalty. However, the Tribunal found that the assessee's claim was made in good faith based on the auditor's certificate, and all relevant facts were disclosed. The Tribunal concluded that the penalty was not justified as the explanation was not found false or incorrect, and the assessee did not conceal particulars of income or furnish inaccurate particulars. Therefore, the penalty was cancelled.

2. Disallowance of Foreign Travel Expenses:
The CIT (A) cancelled the penalty on the disallowance of foreign travel expenses amounting to Rs. 26,817/-. The assessee had previously succeeded in getting a similar disallowance deleted by the Tribunal for AY 1998-99. The Tribunal agreed with the CIT (A) that no penalty should be levied on this issue.

3. Addition of Closing Stock of Consumables/Spares:
The CIT (A) also cancelled the penalty on the addition of closing stock of consumables/spares amounting to Rs. 2,65,051/-. The assessee argued that this addition was made for the first time, rejecting the consistent accounting method followed for the last 25 years. The Tribunal upheld the CIT (A)'s decision to cancel the penalty on this issue as well.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, cancelling the penalty levied u/s 271(1)(c) on the disallowance of Y2K expenses. The Tribunal found that the assessee's claim was made in good faith based on an auditor's certificate, and there was no concealment or furnishing of inaccurate particulars of income. The penalties on the disallowance of foreign travel expenses and the addition of closing stock of consumables/spares were also cancelled. The appeal was allowed, and the order was pronounced on 27.04.2009.