2014 (11) TMI 1175 - AT - Income Tax

Penalty u/s 271(1)(c) - Provision for leave encashment u/s 43B disallowed - Held that - There is merit in the contentions of the assessee. The claim of provision for leave encashment is otherwise allowable as deduction, but for the specific provisions of sec. 43B. Thus, the said claim could not be substantiated in law. Hence, the decision rendered by Hon ble Supreme Court in the case of Reliance Petro Products (P) Ltd 2010 (3) TMI 80 - SUPREME COURT shall squarely apply to this claim. In respect of Project expenses, the question whether it was capital expenditure or revenue expenditure is, as submitted by Ld A.R, is a debatable question. It is well settled principle that the penalty u/s 271(1)(c) shall not lie in respect of such deductions, which are debatable in nature. Accordingly, we are of the view that the impugned penalty order could not be sustained. - Decided in favour of assessee

Summary

Issues involved:
Challenge to penalty under section 271(1)(c) for furnishing inaccurate particulars of income regarding provision for leave encashment and project expenses.

Analysis:
The appeal was filed against the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Act, which was confirmed by the Ld CIT(A). The penalty was related to the inaccurate particulars of income furnished by the assessee concerning provision for leave encashment and project expenses. The AO disallowed the provision for leave encashment under sec. 43B of the Act and treated project expenses as capital expenditure, leading to the penalty imposition. The Ld CIT(A) upheld the penalty, stating that a wrong claim of deduction justifies the penalty.

In the proceedings, the assessee cited the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products (P) Ltd, arguing that making a claim that cannot be substantiated in law does not amount to furnishing inaccurate particulars of income. The assessee contended that the nature of project expenses as capital or revenue expenditure was debatable, questioning the justification of the penalty upheld by the Ld CIT(A). On the other hand, the Ld D.R supported the decision of the Ld CIT(A.

After considering the arguments, the Tribunal found merit in the assessee's contentions. It held that the claim for provision for leave encashment, although otherwise allowable, could not be substantiated due to sec. 43B of the Act, aligning with the Supreme Court's decision in the Reliance Petro Products case. Regarding project expenses, the Tribunal agreed that the nature of expenditure was debatable, and penalties under section 271(1)(c) do not apply to such contentious deductions. Consequently, the Tribunal set aside the Ld CIT(A)'s order and directed the AO to delete the penalty imposed under section 271(1)(c) amounting to Rs. 5,14,456.

Therefore, the appeal filed by the assessee challenging the penalty was allowed, and the penalty was revoked based on the debatable nature of the deductions and the inability to substantiate the claim for provision for leave encashment under sec. 43B of the Act.