2014 (6) TMI 538 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act - Bar of limitation Held that - The assessee had challenged the order passed by the CIT(A) on quantum before the ITAT - The ITAT disposed of the appeals of the assessee on quantum order dated 11.2.2011 - the penalty order has been passed within the limitation prescribed u/s 275(1)(a) of the Act - The assessee has claimed the expenditure as revenue in nature on account of certain business activities, one of them being trading in cloth - This claim of the assessee has been found to be bogus not only by the AO and CIT(A), but also by the Tribunal in the quantum proceedings - the trading business in cloth is bogus - the incurring of expenditure by the assessee to the tune of Rs. 2,12,36,953 has not been disputed by the Departmental authorities as well as by the Tribunal. When there is no dispute to the claim of expenditure itself, the only difference is with regard to nature of expenditure - the assessee is claiming it as revenue, the finding of the Department which is also confirmed by the Tribunal is, it is of capital nature - difference of opinion with regard to the nature of expenditure would not amount to furnishing of inaccurate particulars of income, when fact remains that the assessee has disclosed full particulars of expenditure incurred not only in its books of account but also in the return of income filed as well as during the assessment proceedings. The assessee cannot be accused of furnishing inaccurate particulars of income Relying upon CIT vs. Reliance Petro Products Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT - every expenditure/deduction claimed by the assessee in the return of income when disallowed would automatically not lead to the conclusion that the assessee has either concealed its income or furnished inaccurate particulars of income - imposition of penalty u/s 271(1)(c) of the Act is not called for - This is due to the fact that there is always a difference of opinion with regard to an expenditure being revenue or capital - When the incurring of expenditure has not been disputed, the assessee cannot be accused of concealment or furnishing inaccurate particulars of income merely for the reason that the expenditure claimed is held to be of a capital nature thus, the penalty is set aside Decide in favour of Assessee.

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Determination of whether the expenditure claimed by the assessee is business expenditure or capital expenditure.
3. Examination of whether the penalty order is barred by limitation as per Section 275(1) of the Income-tax Act, 1961.

Detailed Analysis:

1. Legitimacy of the Penalty Imposed under Section 271(1)(c):

The assessee was penalized under Section 271(1)(c) for allegedly furnishing inaccurate particulars of income by claiming certain expenditures as business expenses. The Appellate Tribunal noted that the assessee claimed expenditure for a business that was not in existence, thereby furnishing inaccurate particulars of income. The CIT(A) upheld the penalty, asserting that the assessee indulged in filing incorrect and false particulars to evade taxes. The Tribunal, however, found that while the assessee's claim of cloth trading business was bogus, the expenditure itself was not disputed. The Tribunal concluded that the difference in opinion regarding the nature of expenditure (capital vs. revenue) does not amount to furnishing inaccurate particulars of income. Hence, the penalty under Section 271(1)(c) was not justified.

2. Determination of Whether the Expenditure Claimed by the Assessee is Business Expenditure or Capital Expenditure:

The assessee claimed an expenditure of Rs. 2,12,36,953 as business expenditure. This included Rs. 1,50,78,739 paid to workers for vacating quarters and Rs. 61,58,214 for maintaining corporate structure and meeting statutory obligations. The AO disallowed the expenditure, stating that the assessee was not engaged in any business activity and that the expenditure was capital in nature. The CIT(A) and the ITAT upheld this view, concluding that the cloth trading business was bogus and that the expenditure was related to property development, hence capital in nature. The Tribunal, however, acknowledged that the assessee disclosed full particulars of the expenditure and believed it to be a business expense, thus ruling out the furnishing of inaccurate particulars.

3. Examination of Whether the Penalty Order is Barred by Limitation as per Section 275(1):

The assessee contended that the penalty order was barred by limitation under the proviso to Section 275(1), which mandates that the penalty order should be passed within one year from the end of the financial year in which the order of the CIT(A) is received. The Tribunal found this argument without merit, noting that the assessee had challenged the CIT(A)'s order before the ITAT, which disposed of the appeals on 11.2.2011. Therefore, the penalty order was passed within the prescribed limitation period under Section 275(1)(a).

Conclusion:

The Tribunal concluded that the penalty under Section 271(1)(c) was not warranted as the assessee disclosed all particulars of the expenditure and the dispute was merely about the nature of the expenditure. The penalty imposed was deleted for both assessment years 2003-04 and 2004-05. The appeals were partly allowed, and the penalty orders were set aside.