2012 (8) TMI 270 - AT - Income Tax

Penalty u/s 271(1)(c) - expenditure claimed in relation to IPO issued many years ago dis-allowed on ground that company had been incorporated more than 10 years ago and claim made by the assessee was patently a wrong claim - Held that - Case of penalty is to be evaluated under the provisions of Explanation -1 to section 271(1)(c) as per which, in case, in respect of any addition, the assessee offers Explanation which he is not able to substantiate and is also not able to prove that the Explanation is bonafide and all necessary details in relation to claim have been given, penalty is leviable. In this case, it has not been shown as to how claim can be made in this year u/s 35D or u/s 37 when the claim relates to issue of share capital which is of the nature of capital. Further, no material has been placed to substantiate the claim that it has been made on the basis of legal advice. Therefore, Explanation of the assessee on the facts of the case, in our view, cannot be considered as bonafide and penalty u/s 271(1)(c) is leviable - Decided against assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) for disallowance of claim under section 35D for assessment years 2003-04, 2006-07, and 2009-10.

Analysis:
For the assessment year 2003-04, the appellant disputed the penalty under section 271(1)(c) imposed by the Assessing Officer (AO) for disallowance of a claim under section 35D. The AO disallowed the claim of deduction on account of preliminary expenses as the company had been incorporated more than 10 years ago. The appellant argued that the claim was fully allowable as business expenditure under sections 35D and 37, citing the judgment of the Supreme Court in a similar case. However, the Commissioner of Income Tax (Appeals) upheld the penalty, stating that the claim was wrong and not bonafide. The Tribunal agreed with the lower authorities, emphasizing that the claim was patently wrong, and upheld the penalty under section 271(1)(c) based on the Explanation-1 to the section.

In the subsequent years 2006-07 and 2009-10, the appellant did not press the grounds raised in the appeals, leading to their dismissal as not pressed. Consequently, all appeals by the assessee were dismissed by the Tribunal.

The Tribunal's decision was based on the finding that the claim made by the appellant was not bonafide, as it related to an expenditure incurred many years ago for an IPO, which was of a capital nature. The Tribunal highlighted that the penalty under section 271(1)(c) is a civil liability and does not require mensrea to be proved by the revenue. The Tribunal differentiated the present case from the judgment of the Supreme Court in Reliance Petroproducts Pvt. Ltd., stating that the claim in this case involved both furnishing of inaccurate particulars of income and concealment of income, justifying the penalty imposition.

In conclusion, the Tribunal upheld the penalty under section 271(1)(c) for the assessment year 2003-04, emphasizing the lack of bonafide claim by the appellant. The subsequent appeals for the years 2006-07 and 2009-10 were dismissed as not pressed by the appellant, resulting in the overall dismissal of all appeals.