2012 (11) TMI 757 - AT - Income Tax

Procedure u/s 274 - levy the penalty 271(1)(c) On the date of hearing AO issue penalty order u/s 274 on the same day after getting approval from Add. CIT Assessee contended that Add. CIT did not apply his mind and acted in a mechanical way in giving his approval to levy penalty Held that - On perusal of copy of approval by Add. CIT and the fact that penalty notice was issued in April, 2001, it is observed that penalty proceedings were kept in abeyance as the assessee filed appeal disputing the additions made by the AO. AO might had discussed the matter with Addl. CIT without waiting for the written submissions to be filed by the assessee. Therefore, mere surmise on the part of the assessee that there has not been application of mind by the Add CIT while granting his approval for levy of penalty u/s 271(1) (c). Issue decides in favour of revenue Penalty u/s 271(1)(c) - loss of sale of machine claim as revenue loss instead of capital loss Mere rejection of claim of the assessee held as concealment of income - Value of machine shown as CWIP - Machine become outdated without installation Machine transfer to store and was sold as store scrap Held that - The disallowance of bonafide claim cannot be treated as furnishing inaccurate particulars of income or concealment of particulars of income. Mere rejection of the claim of the assessee would not attract provisions of Sec. 271(1)(c). It is not a case where it could be said that assessee has claimed the said loss as revenue loss dishonestly for avoiding tax particularly when all the relevant facts have been disclosed pertaining to the claim made. Even on erroneous claim for deduction cannot warrant penalty until and unless it is proved that the claim was made with dishonest intention. Issue decides in favour of assessee. Penalty u/s 271(1)(c) Assessee claim capital expenditure as revenue expenditure AO levy penalty u/s271(1)(c) on furnishing inaccurate particulars of income Concealment of income Held that - As the issue as to whether the expenditure constitute revenue expenditure or capital expenditure is a debatable issue. The assessee placed all relevant facts in the return filed and made its claim bonafide as revenue expenditure. Nothing is available on record to show that the belief of the assessee and the explanation of the assessee were false and inherently impossible. Even an erroneous claim for deduction cannot warrant penalty unless and until proved that the claim is made with dishonest intention. In favour of assessee Penalty u/s 271(1)(c) Concealment of income AO disallow claim of interest expense in relation to advance given to subsidiaries/ sister concerns Held that - mere making of claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars of information regarding income or concealment of income. The department has also not brought on record that the claim of the assessee was not bonafide. Issue decides in favour of assessee

Summary

Issues Involved:
1. Compliance with Section 274(2) of the Income Tax Act for levying penalty u/s 271(1)(c).
2. Penalty on disallowance of loss on sale of machinery.
3. Penalty on disallowance of repair expenditure as capital expenditure.
4. Penalty on disallowance of interest on borrowed funds advanced to subsidiaries/sister companies.

Issue-wise Detailed Analysis:

1. Compliance with Section 274(2) of the Income Tax Act for levying penalty u/s 271(1)(c):
The assessee contended that the approval for the penalty was obtained in a mechanical manner on the same day the penalty order was passed, suggesting non-application of mind by the Additional Commissioner of Income Tax. The Tribunal examined the sequence of events and found no evidence that the Additional Commissioner acted mechanically. The Tribunal agreed with the CIT(A) that the AO might have discussed the matter with the Additional Commissioner without waiting for written submissions. Therefore, the Tribunal rejected the assessee's ground, confirming that the provisions of Section 274 were duly complied with.

2. Penalty on disallowance of loss on sale of machinery:
The assessee claimed a loss on the sale of a Rotogravure printing machine as a business loss, which was disallowed by the AO and treated as a capital loss. The AO levied a penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) and Tribunal both noted that the assessee disclosed all relevant facts and made a bona fide claim. The Tribunal referenced the Supreme Court decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars. Consequently, the Tribunal concluded that the penalty was not justified and set aside the orders of the authorities below, deleting the penalty.

3. Penalty on disallowance of repair expenditure as capital expenditure:
The AO disallowed repair expenditures as capital expenditures and levied a penalty for furnishing inaccurate particulars of income. The CIT(A) observed that the nature of the expenditure was debatable and that the assessee had made a bona fide claim, supported by disclosure in the computation of income. The Tribunal agreed with the CIT(A) that mere disallowance of a claim does not warrant a penalty, especially when the claim was made bona fide and all relevant facts were disclosed. The Tribunal upheld the CIT(A)'s decision to delete the penalty.

4. Penalty on disallowance of interest on borrowed funds advanced to subsidiaries/sister companies:
The AO disallowed interest on borrowed funds advanced to subsidiaries and levied a penalty. The CIT(A) deleted the penalty, noting that the claim was bona fide and based on a legitimate interpretation of the law. The Tribunal observed that the mere rejection of a claim does not justify a penalty unless it is shown that the claim was made with dishonest intent. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., and confirmed that the penalty was not warranted.

Conclusion:
The Tribunal allowed the assessee's appeal in part by deleting the penalties related to the disallowance of loss on sale of machinery and repair expenditures. The Tribunal dismissed the department's appeal, upholding the CIT(A)'s decisions to delete the penalties related to repair expenditures and interest on borrowed funds.