2012 (9) TMI 9 - AT - Income Tax

Penalty u/s 271(1)(c) dis-allowance of expenditure on replacement of Air conditioners and stabilizers under buyback scheme as revenue expenditure Held that - Essentially the expenditure on replacement being not for renewal or restoration but for preserving or maintaining the existing asset is not a current repairs. However at relevant time when the claim was made in present case, the deduction of such claim as revenue expenditure was debatable and the jurisdictional High Court also in quantum appeal has admitted the substantial question of law in the backdrop of fact of the opinion entertained by certain courts that it is a revenue expenditure. This by itself goes to show that two views were possible on the issue. Thus, if two views were possible, the explanation offered by it could not said to be false. In any event, none of the authorities below have recorded a finding that the assessee in its return has furnished particulars which are found to be incorrect or erroneous or false. It, therefore, cannot be a claim of furnishing of inaccurate particulars nor can it be said that the explanation tendered by the assessee is false. Since two views are possible, penalty is not exigible u/s 271(1)(c) Decided in favor of assessee

Summary

Issues:
Challenge to penalty imposed under section 271(1)(c) of the Act for claiming expenditure as revenue instead of capital in nature.

Analysis:
The appellant, an assessee deriving income from a hotel business, challenged the sustenance of a penalty of Rs.1.58 lakhs imposed under section 271(1)(c) of the Act. The Assessing Officer disallowed the claim of Rs.3,97,500 for replacement of Air conditioners under the head "plant and machinery repairs," considering it capital expenditure. The assessee contended that it had disclosed the claim correctly in the original return of income and penalty should not be levied. However, the assessing authority found the explanation unsatisfactory and imposed the penalty. The ld. CIT(A) upheld this decision, considering the claim as wrong and untenable, citing the judgment of the Delhi High Court in a similar case. The appellant argued that the expenditure was incurred to enhance the hotel's efficiency and environment, justifying it as a revenue expenditure. The substantial question of law admitted by the Allahabad High Court highlighted the debate on whether the replacement of air conditioners should be treated as capital expenditure.

The Tribunal considered the nature of the advantage in a commercial sense and the enduring impact on the business to determine the expenditure's categorization. The Tribunal noted that since two views were possible on the issue, the explanation provided by the assessee could not be deemed false, following the precedent set by various High Courts and the Supreme Court. The Tribunal found that the claim made by the assessee was debatable and that no authority had established the furnished particulars as incorrect or false. Therefore, the Tribunal concluded that penalty under section 271(1)(c) of the Act was not applicable, canceling the penalty and allowing the appeal raised by the assessee.

In conclusion, the Tribunal's decision emphasized the importance of considering the commercial impact and debatability of claims to determine the applicability of penalties under section 271(1)(c) of the Act. The Tribunal's analysis highlighted the necessity of a bona fide claim and the absence of findings on incorrect or false particulars to justify the cancellation of the penalty in this case.