2019 (1) TMI 1572 - AT - Income Tax

Penalty u/s.271(1)(c) - not specified one of the two limbs - wrong claim of deduction which was incurred by the assessee for stamp duty for increase in authorised share capital - HELD THAT - Indisputably, the expenses were incurred for increase in authorised share capital which was necessitated due to issue and allotment of shares to the shareholders of the demerger company. In the present case, though the assessee has claimed these expenses in current year and also the fact remains that in previous year also such disallowance was made by the AO but the fact of the matter is that the assessee has made full disclosure of the facts in the financial statement and also before the revenue authorities. The only difference was that instead amortisation in five equal instalments, the assessee has claimed the entire amount in one year. We find merit in the submissions of AR that this is bonafide and inadvertent mistake on the part of the assessee - penalty has been imposed on a mechanical manner without specifying one of the two limbs on which the penalty was proposed to be levied and similarly in the penalty order both the limbs were specified which reflects a clear cut case of non-application of mind by the AO and mechanical application of law in imposing the penalty on the assessee. The case of the assessee is squarely covered by the decision of Reliance Petroproducts (P) Ltd., 2010 (3) TMI 80 - SUPREME COURT wherein held that a claim of expenses by the assessee in the books of accounts which is not accepted by the revenue will not attract the penalty. In all the above decisions the hon ble courts CIT VERSUS M/S SSA S EMERALD MEADOWS 2015 (11) TMI 1620 - KARNATAKA HIGH COURT , CIT VERSUS M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, 2013 (7) TMI 620 - KARNATAKA HIGH COURT etc. have held no penalty is to be levied where the AO has not specified one of the two limbs u/s 271(1)c) of the Act on which the penalty is proposed to be levied. We, therefore, following the ratio laid down in the above decisions, set aside the order of CIT(A) and direct the AO to delete the penalty levied against the assessee - Decided against the revenue.

Summary

Issues:
Confirmation of penalty under section 271(1)(c) of the Income Tax Act.

Analysis:
The appeal by the assessee challenged the penalty of ?3,72,040 imposed by the Assessing Officer (AO) under section 271(1)(c) of the Act. The penalty arose from the disallowance of excess deduction claimed under section 35DD of the Act, related to stamp duty and expenses for increasing authorized capital due to a demerger. The AO disallowed a portion of the claimed expenses, citing that only one-fifth should be allowed annually as per Section 35DD. The penalty was imposed based on the AO's interpretation that the assessee concealed income by wrongly claiming the entire expenses in one year. The CIT(A) upheld the penalty, stating that the assessee had accepted similar disallowance in a previous year and did not appeal. The CIT(A) applied Explanation 1 of section 271(1)(c) to justify the penalty, as the difference between returned and assessed income represented concealed income. The CIT(A) presumed the assessee's acceptance of the disallowance due to lack of objection in previous and current years.

The Tribunal analyzed the case, noting that the expenses were legitimately incurred for increasing authorized share capital following a demerger. The assessee had made full disclosure of facts, albeit claiming the entire amount in one year instead of amortizing it over five years. The Tribunal found the penalty imposition to be mechanical, lacking specificity on the grounds for penalty under section 271(1)(c). Citing relevant legal precedents, including the Supreme Court's decision in Reliance Petroproducts (P) Ltd. and Karnataka High Court's ruling in Manjunatha Cotton and Ginning Factory, the Tribunal concluded that penalty cannot be levied if the AO fails to specify the grounds for penalty. Therefore, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the penalty imposed on the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the penalty was unjustly imposed without proper specification of grounds, in line with established legal principles.