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2013 (6) TMI 15 - HC - Income TaxPenalty u/s 271(1)(c) - expenditure incurred on renovation or improvement or repairs on the leasehold premises disallowed - Held that - The issue raised by the assessee was debatable and capable of two views. The assessee had an arguable case or had taken a bonafide plea. The assessee had given his explanation and categorically and clearly stated the true and full facts in the return itself. He did not try to camouflage or cover up the expenses claimed. It is not uncommon and unusual for an assessee to bonafidely claim a particular expenditure as a revenue deduction and expense but not succeed. Every addition or disallowance made does not justify and mandate levy of penalty for concealment under Section 271(1)(c). Levy of penalty is not an automatic consequence when an addition is made by disallowing an expense and by not accepting the interpretation given by the assessee. Explanation 1 clearly stipulates that the penalty can be imposed when the details furnished by the assessee are found to be incorrect, erroneous and false. Merely making a claim which is held as not sustainable under law should not lead to penalization, when the assessee had furnished full details in the return itself and the claim is a debatable, reasonably plausible or may well have been accepted. See CIT vs. Reliance Petro Product Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT , CIT vs. Dharampal Premchand Ltd. 2010 (9) TMI 155 - DELHI HIGH COURT , CIT Versus SOCIETEX 2012 (7) TMI 664 - DELHI HIGH COURT , Price Water House Coopers Pvt. Ltd v. CIT 2012 (9) TMI 775 - SUPREME COURT - decided in favour of assessee and held that penalty u/s 271(1)(c) is not justified.
Issues Involved:
1. Justification of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Nature of loss on closure of South Extension Unit. 3. Nature of capital expenditure for interior designing. 4. Bona fide explanation and full disclosure by the assessee. 5. Applicability of Explanation 1 to Section 32(1) and Section 32(1)(iii) of the Income Tax Act. Detailed Analysis: 1. Justification of Penalty under Section 271(1)(c): The primary issue is whether the Income Tax Appellate Tribunal was justified in upholding the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The court noted that penalty under this section is imposed when an assessee conceals income or furnishes inaccurate particulars. The explanation provided by the assessee must be bona fide, and all facts material to the computation of income must be disclosed. 2. Nature of Loss on Closure of South Extension Unit: The assessee claimed a loss of Rs. 25,37,521 due to the closure of its South Extension Unit, arguing that the expenditure incurred should be treated as a revenue loss. The Tribunal, however, held that this loss was a capital loss, not a revenue loss, as the expenditure resulted in an addition to the profit-making apparatus of the assessee. The Tribunal's reasoning was based on the fact that the assets were capital in nature and were used for the purpose of business, and thus, the loss had to be treated as a loss of capital. 3. Nature of Capital Expenditure for Interior Designing: The assessee also claimed Rs. 1,32,000 as revenue expenditure for interior designing of the South Extension Unit. The Tribunal observed that this expenditure was capital in nature and not revenue expenditure. The expenditure was pre-commencement and related to setting up a new source of income, thus qualifying as capital expenditure. 4. Bona Fide Explanation and Full Disclosure by the Assessee: The court emphasized that the assessee had made full disclosure in its return of income and profit and loss account regarding the nature of the loss and expenditure. The explanation provided by the assessee was not found to be factually incorrect or false. The court noted that the assessee's explanation was bona fide and based on a plausible legal interpretation, even though it was ultimately not accepted. 5. Applicability of Explanation 1 to Section 32(1) and Section 32(1)(iii): The Tribunal noted that the assessee's reliance on earlier Supreme Court decisions was inapplicable due to the introduction of Explanation 1 to Section 32(1) and Section 32(1)(iii). The court acknowledged that the issue was debatable and capable of two views, indicating that the assessee had an arguable case. Conclusion: The court concluded that the penalty under Section 271(1)(c) was not justified. It emphasized that every addition or disallowance does not automatically mandate the imposition of a penalty. The assessee had provided a bona fide explanation and had disclosed all material facts. The court directed that the penalty for concealment on the amounts of Rs. 25,37,521 and Rs. 1,32,000 be deleted, thereby disposing of the appeal in favor of the assessee.
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