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Issues involved: Assessment of penalty u/s 271(1)(c) for disallowance of deferred revenue expenditure claimed as revenue expenditure.
Summary: The Department filed an appeal against the order of CIT(A) regarding the disallowance of deferred revenue expenditure claimed as revenue expenditure by the assessee for A.Y. 2008-09. The AO initiated penalty proceedings for various additions, including the disallowance of deferred revenue expenditure. The CIT(A) deleted the penalty related to this disallowance. The Department's grounds of appeal questioned the treatment of the expenditure as revenue in nature and the admission that the E-Business activities had not commenced by a certain date. The assessee had deducted an amount for the development of a website for E-Business, claiming it as deferred revenue expenditure. The AO considered it capital expenditure as it was for software development and disallowed the claim. The CIT(A) observed that the assessee disclosed the expenditure details in the audited balance sheet, indicating no inaccurate particulars furnished. The CIT(A) noted the difference of opinion on the nature of the expenditure and held that no penalty u/s 271(1)(c) was warranted. The AO's reliance on the definition of computer software for disallowance was deemed debatable by the CIT(A), as the claim was based on a reasonable belief of being allowable as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, emphasizing the bona fide belief of the assessee and the debatable nature of the issue. The Department's appeal was dismissed. In conclusion, the penalty u/s 271(1)(c) for disallowance of deferred revenue expenditure claimed as revenue expenditure was deleted by the CIT(A) and upheld by the Tribunal, citing the reasonable belief of the assessee and the debatable nature of the expenditure's classification.
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