2011 (1) TMI 427 - AT - Income Tax

Tax evasion - Penalty - Disallowance - Revenue or capital expenditure - assessee claimed deduction of expenditure amounting to Rs. 8,34,435 in respect of fees paid to Registrar of Companies for increasing the authorized share capital - in the case of Punjab State Industrial Development Corpn. Ltd. v. CIT 1997 225 ITR 792/93 Taxman 5 - Held that wherein the nature of similar expenditure claimed by the assessee was held to be capital - assessee s case comes within the purview of Explanation 1 to section 271(1)(c) for levy of penalty for furnishing inaccurate particulars by the assessee - Decided against the assessee

Summary

Issues Involved:

1. Disallowance of expenditure as capital expenditure.
2. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
3. Bona fide nature of the assessee's claim.
4. Role and responsibility of the auditors.
5. Applicability of judicial precedents.

Detailed Analysis:

1. Disallowance of Expenditure as Capital Expenditure:

The assessee filed its return declaring nil income, debiting Rs. 8,34,435 as fees paid to the Registrar of Companies for increasing the authorized share capital. The Assessing Officer (AO) disallowed this expenditure, treating it as capital expenditure based on the Supreme Court decision in Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792. The AO initiated penalty proceedings, asserting that the assessee intentionally sought to evade tax by furnishing inaccurate particulars of income.

2. Levy of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:

The AO levied a penalty of Rs. 2,80,870, the minimum penalty, citing that the assessee did not voluntarily surrender the amount and sought to evade tax. The CIT(A) upheld the penalty, referencing the Delhi High Court decision in CIT v. Escorts Finance Ltd., [2009] 183 Taxman 453, which inferred furnishing inaccurate particulars of income from an ex facie bogus claim.

3. Bona Fide Nature of the Assessee's Claim:

The assessee argued that the expenditure was fully disclosed in the return and audited financial statements, asserting that there was no malafide intent. The tax audit report, prepared by M/s. Bansal & Company, did not classify the expenditure as capital in nature. The assessee claimed reliance on the auditor's report, which showed nil amount against capital expenditure, as a bona fide explanation.

4. Role and Responsibility of the Auditors:

The Tribunal noted that the tax audit report prepared by M/s. Bansal & Company did not highlight the expenditure as capital. The affidavit from the Chartered Accountant stated that the amount escaped his attention. However, no action was taken against the auditors, and the Tribunal found the affidavit to be an afterthought, indicating that reliance on the auditor's mistake does not absolve the assessee from penalty.

5. Applicability of Judicial Precedents:

The Tribunal referenced several judicial precedents:

- Punjab State Industrial Development Corpn. Ltd. v. CIT: The Supreme Court held that fees paid to the Registrar for increasing share capital is capital expenditure.

- CIT v. Reliance Petroproducts (P.) Ltd.: The Supreme Court noted that penalty cannot be levied if there is no finding of incorrect or false details supplied by the assessee.

- CIT v. Zoom Communication (P.) Ltd.: The Delhi High Court held that a wholly untenable claim without bona fide explanation attracts penalty.

- CIT v. Escorts Finance Ltd.: The Delhi High Court ruled that an ex facie bogus claim attracts penalty even if particulars were disclosed.

- CIT v. Vijay Kumar Jain: The Chhattisgarh High Court distinguished between wrong claims and false claims, emphasizing the absence of concealment or inaccurate particulars.

- Mimosa Investment Co. (P.) Ltd. v. ITO: The Mumbai Tribunal deleted the penalty, noting that all material facts were disclosed.

- CIT v. Shahabad Co-op. Sugar Mills Ltd.: The Punjab & Haryana High Court held that making a wrong claim is not equivalent to concealment or furnishing inaccurate particulars.

- CIT v. IFCI Ltd.: The Delhi High Court emphasized the distinction between a wrong claim and an ex facie false claim.

The Tribunal concluded that the assessee's claim was ex facie false, given the Supreme Court's clear ruling on the nature of such expenditure. The Tribunal upheld the penalty, noting that the explanation furnished by the assessee was not bona fide and that reliance on the auditor's mistake did not absolve the assessee from penalty under section 271(1)(c).

Conclusion:

The appeal was dismissed, and the penalty levied under section 271(1)(c) was upheld, as the assessee's claim was found to be ex facie false and not bona fide, aligning with the judicial precedents cited.