2014 (4) TMI 709 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Disallowance of director s remuneration Disallowance of technical knowhow Held that - The Tribunal has deleted the disallowance on payments of director s remuneration thus, there is no justification for levy of penalty for disallowance of payment of remuneration - the assessee has made full disclosure of expenditure incurred for technical knowhow - It was clearly shown in the balance sheet as deferred revenue expenditure - the entire expenditure was paid during the year in the computation of income, same was claimed as revenue expenditure u/s 37(1) Relying upon CIT Vs. Wavin (India) Ltd. 1997 (9) TMI 6 - SUPREME Court - thus, there was no concealment of facts by the assessee in the return of income there was no justification for the imposition of penalty for disallowing the payment claimed u/s 37(1), since there was full disclosure of expenses so incurred for technical knowhow, genuineness of expenses were not doubted, mere disallowance on the plea of expenses being capital in nature, do not warrant any imposition of penalty u/s.271(1)(c). Relying upon COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD 2010 (3) TMI 80 - SUPREME COURT - for levy of penalty under Section 271(1)(c), there has to be concealment of particulars of income of the assessee and revenue is required to show that assessee must have furnished inaccurate particulars in his income - When there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false, there is no question of inviting penalty u/s 271(1)(c) - A mere making of claim will not amount to furnishing inaccurate particulars regarding the income of the assessee thus, the order of penalty u/s 271(1)(c) of the Act set aside Decided in favour of Assessee.

Summary

Issues:
Appeal against penalty under Section 271(1)(c) of the I.T. Act for assessment year 2001-02.

Analysis:
The appeal was filed by the assessee against the penalty imposed under Section 271(1)(c) of the I.T. Act for the assessment year 2001-02. The assessee, engaged in the business of speciality chemicals, faced disallowances by the AO for payments to retiring directors and to M/s CHK Germany for technology and technical knowhow. The CIT(A) upheld these disallowances and imposed penalties, leading to the appeal before the ITAT. The assessee argued that the disallowance for payment to directors was previously deleted by the Tribunal, and for technical knowhow fees, full disclosure was made in the balance sheet as deferred revenue expenditure, claiming it as revenue expenditure under Section 37(1) with reference to various judicial pronouncements. The assessee emphasized the need for inaccurate particulars to levy a penalty under Section 271(1)(c) based on the decision in Reliance Petroproducts Pvt. Ltd. case.

The ITAT found that the disallowance for payment to directors was previously deleted by the Tribunal in the quantum appeal, thus no penalty was justified in this regard. Regarding the penalty for disallowance of technical knowhow fees, the ITAT noted the full disclosure of expenditure by the assessee, which was claimed as revenue expenditure under Section 37(1) based on judicial pronouncements. The ITAT emphasized that there was no concealment of facts by the assessee, and the disallowance on the basis of expenses being capital in nature did not warrant a penalty under Section 271(1)(c). Citing the Reliance Petroproducts Pvt. Ltd. case, the ITAT reiterated that a penalty can only be imposed when there is a concealment of particulars of income, and a mere unsustainable claim does not amount to inaccurate particulars.

Based on the above analysis, the ITAT reversed the orders of the lower authorities and deleted the penalty imposed under Section 271(1)(c), allowing the appeal filed by the assessee. The judgment was pronounced on April 16, 2014.