2011 (4) TMI 654 - AT - Income Tax

Penalty u/s 271(1)(c) - Disallowance - Capital loss - Assessee has wrongly claimed the loss when he was aware that provisions of Sec. 94 are applicable to such transactions - Held that AO is right in levying penalty u/s 271(1)(c) and holding that the appellant has furnished inaccurate particulars of its income - Accordingly levy of penalty is justified. SAP Expenses - However the AO will have to establish during the next assessment year whether the amount disallowed are connected with any specific depreciable asset and if it is so only then the question of allowing depreciation during the next assessment year when the SAP project becomes operational can be considered - directed the Assessing Officer to decide the issue afresh recording the clear finding of the exact nature of expenses claimed by the assessee company and allowing the same - Further the appeal effect is pending - However the necessary details have already been submitted to the assessing officer - since the issue has been set aside we set aside the penalty levied in this regard. disallowance u/s 14A - As this issue has been set aside in the quantum appeal and the addition no longer stands set aside the levy of penalty also. Donation u/s 80G - appellant has submitted that disallowance of deduction on account of non production of receipts cannot be considered as concealment of income or furnishing of inaccurate particulars of income - The receipt has not been made available before more than one authority and before us and also before the authorities in the penalty proceedings - Hence we confirm the penalty on this issue. Deduction u/s.80HHC - The Apex Court in the case of CIT vs Reliance Petroproducts Pvt. Ltd. 2010 -TMI - 75701 - SUPREME COURT held that as long as the assessee had not given any information in the return which is incorrect making an incorrect claim in law will not tantamount to furnishing inaccurate particulars and penalty u/s 271(1)(c) is not attracted - Hence penalty was not leviable - Delete the penalty levied in respect of disallowance u/s 80HHC.

Summary

Issues Involved:
1. Short term capital loss disallowed under Section 94(7) of the Act.
2. SAP Expenses disallowed as capital expenditure.
3. Expenses related to investments disallowed under Section 14A of the Act.
4. Deduction under Section 80G disallowed due to non-production of receipts.
5. Recomputed deduction under Section 80HHC.

Issue-wise Detailed Analysis:

1. Short Term Capital Loss Disallowed under Section 94(7):
The assessee argued that the capital loss of Rs. 99,396/- was not intended to avoid tax, and the provisions of Section 94 are applicable only to systematic transactions aimed at tax evasion. The CIT(A) rejected this plea, stating that the provisions of Section 94 are clear, and the appellant, being a reputed company advised by knowledgeable counsels, should have been aware of these provisions. The tribunal upheld the CIT(A)'s decision, confirming that the assessee had wrongly claimed the loss knowing the applicability of Section 94.

2. SAP Expenses Disallowed as Capital Expenditure:
The assessee contended that SAP-related expenses should be treated as revenue expenditure as they were incurred for upgrading and modifying existing systems. The CIT(A) noted that the appellant had capitalized the expenses in its books and could not satisfactorily explain their nature. The CIT(A) upheld the disallowance, stating that these expenses were not related to any specific depreciable asset operational during the assessment year. The tribunal set aside the penalty, noting that the quantum appeal on this issue had been remanded for fresh consideration by the AO.

3. Expenses Related to Investments Disallowed under Section 14A:
Since the quantum appeal on this issue had been set aside, the tribunal also set aside the levy of penalty related to disallowance under Section 14A.

4. Deduction under Section 80G Disallowed Due to Non-production of Receipts:
The assessee claimed a deduction of Rs. 2,91,502/- under Section 80G, but the AO disallowed Rs. 42,002/- due to the non-production of receipts. The CIT(A) upheld the penalty, emphasizing that the onus was on the assessee to substantiate the claim with proper receipts. The tribunal found no infirmity in the CIT(A)'s order, confirming the penalty as the receipts were not produced before any authority.

5. Recomputed Deduction under Section 80HHC:
The AO recomputed the deduction under Section 80HHC, disallowing certain amounts and excluding specific incomes from business profits. The CIT(A) confirmed the levy of penalty on the excess deduction claimed. However, the tribunal noted that Section 80HHC had undergone numerous amendments and was a subject of litigation. The assessee had disclosed all particulars and the claim was supported by a Chartered Accountant's certificate. Citing the Supreme Court's decision in CIT vs Reliance Petroproducts Pvt. Ltd., the tribunal held that making an incorrect claim in law does not amount to furnishing inaccurate particulars. Therefore, the tribunal deleted the penalty related to the disallowance under Section 80HHC.

Conclusion:
The appeal filed by the assessee was partly allowed, with penalties on certain issues being set aside or deleted based on the nature of the claims and the supporting evidence provided. The order was pronounced on 27.4.2011.