2013 (11) TMI 362 - AT - Income Tax

Penalty for furnishing of inaccurate particulars/documents Held that - Assessee company is an old assessee which is assisted by Chartered Accountant and hence it cannot be accepted that the excess claim of depreciation has been made through oversight. In view of that matter, there are sufficient reasons to believe that the wrong/excess claim of depreciation is not out of bonafide/inadvertent mistake of the assesseee Decided in favor of Revenue. Levy of penalty for disallowance u/s 14A of the Income Tax Act Held that - Following similar directions of the ITAT in the earlier years to restrict the disallowance attributable towards earning of this dividend income u/s 14A at 2% of the earning of dividend received against which the assessee has not preferred any appeal to the High Court thereby the same becomes conclusive. This results in the presumption that the assessee would have known the eligible disallowance on this issue. When the fact is being so, it is a fit case for levy of penalty Decided in favor of Revenue. Levy of penalty on disallowance of compensation for agreement for exclusive utilisation in non-compete fees - During the previous year the assessee had paid a sum of Rs.1,05,00,000/- towards compensation for agreement for Exclusive utilisation, non- competitive business practice and keep out covenant. This expenditure in the book of accounts was treated as deferred revenue in nature, the entire sum had been claimed as an allowable expenditure in the year in which the same was incurred, though a different treatment had been adopted in the books of accounts Held that - Fact of the non-compete fees has been disclosed by the assessee in the computation of income filed along with the return of income. Since the entire facts have been disclosed by the assessee by way of note in the computation of income and there are several decisions in favour and against the appellant on this issue, agreed with the findings of the Ld.CIT(A) that the issue of non-compete fee is highly debatable and no penalty u/s 271 (1)(c) can be levied on the debatable issues and the same is upheld Decided against the Revenue.

Summary

Issues:
1. Penalty on disallowance of excess depreciation claimed on trucks.
2. Penalty on disallowance of depreciation on purchase.
3. Penalty on disallowance made u/s 14A of the Act.
4. Penalty on disallowance of compensation for agreement for exclusive utilisation in non-compete fees.

Issue 1: Penalty on disallowance of excess depreciation claimed on trucks:
The appeal concerned the levy of penalty on disallowance of excess depreciation claimed on trucks by the assessee. The AO disallowed the excess claim and imposed a penalty for furnishing inaccurate particulars of income. The assessee argued that the excess claim was corrected upon discovery and was due to an honest mistake, thus the penalty should be deleted. However, it was noted that the excess claim was noticed by the AO during assessment proceedings, and the correction was made only after the AO's notice. The tribunal upheld the penalty, stating that the claim was not made due to inadvertent mistake but rather lack of bonafide intention. The tribunal dismissed the appeal on this ground.

Issue 2: Penalty on disallowance of depreciation on purchase:
The tribunal decided to restore the matter of penalty on disallowance of depreciation on purchase to the AO for a fresh decision in accordance with the view taken on the addition in quantum proceedings. Citing the judgment in Mohammed Mohatram Farooqui Vs. CIT, the tribunal held that the penalty should align with the final decision on the addition. The tribunal overturned the previous order and instructed the matter to be reconsidered by the AO.

Issue 3: Penalty on disallowance made u/s 14A of the Act:
Regarding the penalty on disallowance made u/s 14A of the Act, the tribunal noted discrepancies in the disallowance amount and directed the AO to decide the penalty amount after resolving the quantum issue as per the ITAT's direction. The tribunal partially allowed the appeal on this ground, emphasizing the need for a revised penalty determination post the resolution of the quantum matter.

Issue 4: Penalty on disallowance of compensation for agreement for exclusive utilisation in non-compete fees:
The tribunal addressed the penalty imposed by the AO on disallowance of compensation for an agreement for exclusive utilization in non-compete fees. The AO treated the expenditure as capital expenditure, leading to the penalty under section 271(1)(c). However, the CIT(A) deleted the penalty citing the highly debatable nature of the issue. The tribunal upheld the CIT(A)'s decision, stating that penalties cannot be levied on debatable issues. Consequently, the appeal filed by the assessee was partly allowed, and that of the Revenue was dismissed.

In conclusion, the tribunal's judgment encompassed various penalty issues related to depreciation claims, disallowances, and compensation agreements. The decisions provided detailed analyses of each issue, considering factors such as the nature of the claims, disclosure of information, and debatability of the issues involved. The tribunal's rulings aimed to ensure fair and just outcomes based on legal precedents and the specifics of each case.