2013 (1) TMI 186 - HC - Income Tax

Penalty u/s 271(1)(c) - ITAT deleted the levy as no justification for the revenue authorities to conclude that the assessee s conduct was malafide in claiming the expenditure towards renovation and other repairs which was ultimately disallowed - Held that - One cannot be unmindful of the fact that the expenditure was primarily incurred by ITDC and at the stage when the return was filed the assessee could not undoubtedly produce the vouchers since the expenditure had been incurred by ITDC. But even eventually the assessing officer disallowed the claim only on the ground that it was capital in nature, and did not doubt the genuineness of the expenditure. The question whether an expenditure is capital or revenue is a debatable one, on which more than one view is possible. Having regard to these facts and decisions relied upon by the ITAT in CIT Vs. Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT & CIT Vs. Zoom Communication Pvt. Ltd 2010 (5) TMI 34 - DELHI HIGH COURT wherein held that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee - no infirmity in the reasons of the order of ITAT - in favour of assessee.

Summary

Issues:
Claim of penalty under Section 271(1)(c) for disallowed expenditure on renovation and repairs.

Analysis:
The issue in this case revolves around the imposition of a penalty under Section 271(1)(c) by the revenue authorities on the assessee for claiming expenditure on renovation and repairs, which was disallowed by the assessing officer as capital expenditure. The ITAT allowed the assessee's appeal against the order of the CIT(Appeals) confirming the penalty. The primary question raised was whether the assessee's conduct in claiming the expenditure was malafide, justifying the penalty. The assessing officer disallowed the claimed expenditure of Rs. 45,48,371 on the grounds of lack of supporting material or evidence, treating it as capital. The Tribunal, considering relevant case laws, emphasized that a claim being incorrect in law does not necessarily amount to mala fide conduct. The crucial determination was whether the claim was bona fide or mala fide.

The Tribunal found no justification to hold the assessee's action as mala fide. It noted that the expenditure was incurred by the previous manager of the hotel, ITDC, and the assessee could not produce vouchers as they were with ITDC. The Tribunal highlighted that non-production of vouchers, while justifying disallowance, does not imply concealment, especially when there is a reasonable cause for the inability to produce them. Additionally, the Tribunal considered the nature of the expenditure on hotel renovation as a debatable issue, where differing views exist on whether it constitutes capital or revenue expenditure. The Tribunal concluded that the disallowance of the expenditure did not indicate inaccurate particulars or income concealment by the assessee.

The High Court, in its judgment, upheld the Tribunal's decision, emphasizing that the revenue's contention of a willful or malafide claim by the assessee was unconvincing. The Court noted that the assessing officer disallowed the claim based on capital nature grounds and did not question the genuineness of the expenditure. Given the debatable nature of distinguishing capital and revenue expenditure, the Court found no fault in the Tribunal's reasoning. Consequently, the Court dismissed the appeal, stating that no substantial question of law arose from the case.

In conclusion, the judgment highlights the importance of distinguishing between bona fide and mala fide claims in tax matters. It underscores that the absence of supporting material does not automatically imply mala fide intent. The decision also emphasizes the significance of considering the debatable nature of expenditure classification while assessing penalties under tax laws.