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2010 (2) TMI 877 - AT - Income TaxPenalty u/s.271(1)(c) AO levied penalty, software expenses treated as capital in quantum matter - Held that - this issue has been sent back to the file of the AO since basis on which AO levied penalty has not become final. CIT(A) has rightly cancelled the penalty on this issue. As regards other items on which AO levied penalty, AO has failed to point out any specific particular which have either been concealed or inaccurate, assessee s claim for provision of cash, depreciation on know-how without calculation of deduction these are the bonafide claims of the assessee which does not amount to furnishing of inaccurate particulars, therefore conditions laid down in section 271(1)(c) are not satisfied therefore penalty provisions of section 271(1)(c) not applicable, revenue s appeal stands dismissed.
Issues Involved:
1. Deletion of penalty levied under section 271(1)(c) of the Income Tax Act. 2. Software expenses treated as capital. 3. Provision for liability for cash award. 4. Depreciation on technical knowhow. 5. Excess deduction under section 80HHC. Issue-wise Detailed Analysis: 1. Deletion of Penalty under Section 271(1)(c): The primary issue was whether the CIT(A) erred in deleting the penalty amounting to Rs. 6,50,281/- levied by the AO under section 271(1)(c). The CIT(A) observed that merely sustaining an addition on merit does not automatically attract penalty under section 271(1)(c) unless it is proven that the assessee furnished inaccurate particulars or concealed income. The CIT(A) relied on the judgment of the Hon'ble Rajasthan High Court in the case of Harshvardhan Chemicals and Mineral Ltd. (2003) 259 ITR 212, which stated that in cases of debatable claims, it does not amount to concealment or furnishing inaccurate particulars. 2. Software Expenses Treated as Capital: The AO had levied a penalty on software expenses amounting to Rs. 4,88,176/- treated as capital. The ITAT in the assessee's own case (ITA No.6083 and 6138/M/06 dated 27.4.2009) had sent this issue back to the AO for reconsideration. The contention was supported by the ITAT's decision in the case of Godfrey Philips India Ltd. (ITA No.2747 and 2592/M/09 dated 20.1.2010), where it was held that penalty under section 271(1)(c) is not leviable on debatable issues. 3. Provision for Liability for Cash Award: The AO had levied a penalty on the provision for liability for cash award amounting to Rs. 4,40,226/-. The assessee did not press this issue before the ITAT. The AR argued that similar provisions for depreciation and deduction under section 80HHC were debatable, and thus, no penalty under section 271(1)(c) was leviable. 4. Depreciation on Technical Knowhow: The AO had levied a penalty on depreciation on technical knowhow amounting to Rs. 12,60,375/-. The AR argued that the issue was debatable, and the CIT(A) had rightly canceled the penalty. The AR relied on various decisions, including ITO vs. Medicorp Technologies India Ltd. (30 SOT 506) and ACIT vs. Real Image Tech (P) Ltd. (177 Taxman 80), which supported that full disclosure by the assessee negates the applicability of penalty. 5. Excess Deduction under Section 80HHC: The AO had levied a penalty on excess deduction under section 80HHC amounting to Rs. 1,41,049/-. The AR argued that the treatment given in respect of section 80HHC was subject to further litigation and was debatable, thus no penalty under section 271(1)(c) was leviable. The AR relied on the decision that if the assessee's claim is certified by an expert, no penalty is leviable. Conclusion: The ITAT examined the issue of penalty under section 271(1)(c) from various angles. It was noted that income tax is collected for the welfare of the state, and taxpayers might agree to certain additions to avoid litigation. The ITAT emphasized that mere admission does not warrant penalty unless there is material evidence of concealment. The ITAT held that the AO failed to point out any specific particulars that were concealed or inaccurate. The claims for provision of cash, depreciation on knowhow, and deduction under section 80HHC were bona fide and did not amount to furnishing inaccurate particulars. Thus, the conditions laid down under section 271(1)(c) were not satisfied. Consequently, the ITAT upheld the CIT(A)'s order, and the revenue's appeal was dismissed. Order Pronounced on 24.2.2010.
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