2013 (4) TMI 656 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee has claimed depreciation on technical know-how of @ 25% & as observed by AO that technical know-how fees was to be allowed u/s. 35AB deduction was to be allowed in six equal installments - CIT(A) deleted the penalty levy - Held that - CIT(A) is correct in observing that the claim of the assessee for depreciation on account of payment of third installment of technical know-how was bonafide viewed in the context of history of the assessee s case on the issue. It was with respect of the third installments which was paid during the financial year 1991-92 that the assessee capitalized the amount of Rs. 1,78,61,880/- to the plant and machinery being technical know-how fees treating the same as pre-operative expenses. AO however, on perusal of the details filed observed that Section 35AB was specific provision for allowability of expenditure on acquisition of know-how. Therefore, the deduction was required to be given by spreading it equal of six years. Thus, it is clear that the assessee has made the claim for payment of technical know-how under the bonafide belief that its claim for payment of third installment was also allowable as deduction on the same basis as in the previous year. Thus, the assessee cannot be held guilty of furnishing of inaccurate particulars or concealment of income in this case. See CIT vs. Reliance Petro Products Ltd. 2010 (3) TMI 80 - SUPREME COURT , Dilip N. Shroff Versus Joint Commissioner of Income-tax And Another 2007 (5) TMI 198 - SUPREME Court wherein held that mensrea was a essential requirement of penalty u/s 271(1)(c). Also see Hindustan Steel vs. State of Orissa 1969 (8) TMI 31 - SUPREME Court - In favour of assessee.

Summary

Issues:
1. Whether the Ld. Commissioner of Income Tax erred in deleting the addition made by the Assessing Officer under section 271(1)(c) of the Act.

Analysis:
The appeal was against the order of the Ld. Commissioner of Income Tax (Appeals-XIII), New Delhi for the assessment year 1992-93. The issue raised was regarding the deletion of an addition of Rs. 14,88,490/- made by the Assessing Officer under section 271(1)(c) of the Act. The Assessing Officer disallowed depreciation claimed on technical know-how and imposed a penalty of Rs. 6,69,820/- for furnishing inaccurate particulars of income. However, the Ld. Commissioner of Income Tax (A) deleted the penalty, leading to the Revenue's appeal.

During the assessment, it was observed that the assessee claimed depreciation on technical know-how, which the Assessing Officer disallowed partially. The Assessing Officer disallowed Rs. 44,65,470/- and allowed only 1/6th of that amount as deduction under section 35AB of the Act. Subsequently, the penalty under section 271(1)(c) was imposed by the Assessing Officer, which was deleted by the Ld. Commissioner of Income Tax (A) based on the bonafide belief of the assessee.

The Tribunal analyzed the case and found that the claim for depreciation on technical know-how by the assessee was made in good faith, considering the history of the case. The Tribunal referred to relevant legal precedents, including the decision in CIT vs. Reliance Petro Products Ltd., to support its conclusion that the assessee cannot be held guilty of furnishing inaccurate particulars or concealment of income in this case. The Tribunal emphasized that penalty should not be imposed for a technical breach or a bonafide belief that the offender is not liable to act as prescribed by the statute.

Based on the discussions and legal precedents cited, the Tribunal upheld the order of the Ld. Commissioner of Income Tax (A) and dismissed the appeal filed by the Revenue. Therefore, the penalty imposed by the Assessing Officer was deleted, concluding the case in favor of the assessee.