2015 (5) TMI 1205 - AT - Income Tax

Penalty u/s 271(1)(c) - additions/disallowances while completing the assessment order based on the comments/observation made by the special auditor and C AG, that the FAA confirmed the additions/disallowances - HELD THAT - AO had made additions/disallowances on four counts and first among them is about income accrued to the assessee on account of OWK Tunnel Project. The FAA found that because of the dispute going with the Govt. of AP the assessee was not sure as to how much additional compensation would be given to the sub contractor or when it would be paid. In these circumstances if the assessee had showed the income in the year of receipt it cannot be said that it had concealed its particulars of income. It is not the case of the AO that the assessee had not disclosed the fact of ongoing dispute with the AP Govt. or the fact that amount was to be paid to sub -contractor. Income arising from the other projects had been shown by the assessee in the return so there was no justification of invoking the provisions of section 271(1)(c) - As far as the disallowance of certain item and capitalization of those expenses is concerned we are of the opinion that no concealment was involved in those transactions. The assessee had furnished all the details and claimed 100% depreciation as per the advice of the ICAI. The difference of opinion between the assessee and the AO about the allowability of the depreciation cannot and should not lead to levy of concealment penalty. Penalty could not be imposed, as a matter of course. The assessee was truthful in submitting its return and making a claim for depreciation on its understanding of law. This was not a case of claim of depreciation on machinery which was not purchased. Courts are of the view that where basic information has been provided by the assessee then for a claim made by the assessee and disallowed by the AO penalty u/s.271(1) (c)cannot be levied. Here one more thing is to be remembered that the C AG had dropped the comments made by it about the disputed amounts. Similarly on the issue of as to whether an expenditure is capital or revenue no concealment penalty can be levied. No authority is required to support the view. Making additions or disallowing certain expenses during the assessment proceedings is totally different from invoking penal provisions. There is no provision in the Act of automatic levy of penalty for the additions/disallowances made. Penalty can be levied if it is established that the assessee had not disclosed necessary facts or that the explanation filed by it is not bona fide or plausible. We find that the FAA has given a clear finding of fact that there was no furnishing of inaccurate particulars that the explanation given by the assessee was bonafide. As decided in RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT where 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 the penalty under section 271(1)(c) A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of penalty levied under section 271(1)(c) of the Income Tax Act.
2. Incorrect depreciation and deduction claims.
3. Non-recognition of project income.
4. Treatment of capital expenditure as revenue expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c) of the Income Tax Act:
The Assessing Officer (AO) challenged the deletion of penalty levied under section 271(1)(c) by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO argued that the CIT(A) erred in deleting the penalty of Rs. 11,07,97,349/- for the assessment year (AY) 2004-05, and similar penalties for subsequent years, citing that the assessee was aware of the incorrectness of their claims, making them vulnerable to penalties.

2. Incorrect Depreciation and Deduction Claims:
The AO found that the assessee had claimed 100% depreciation on fixed assets costing less than Rs. 1.00 lakh, aggregating to Rs. 98.45 lakhs, which was against the provisions of section 32 of the Act. The AO capitalized the amount in question and made a disallowance of Rs. 68.07 lakhs. Additionally, the AO noted that the assessee had claimed incorrect depreciation and deductions, which were vulnerable to penalties.

3. Non-Recognition of Project Income:
The AO identified that the assessee failed to account for 10% income of the cost incurred for the OWK Tunnel project, amounting to Rs. 71.18 lakhs, and a similar amount of Rs. 72.22 lakhs for another project. The AO issued a notice under section 274 read with section 271(1)(c) for furnishing inaccurate particulars of income. The assessee argued that revenue was recognized when performance requirements were satisfied, and due to price variation, the bill amount payable to the subcontractor increased, which was to be claimed from the Government of Andhra Pradesh.

4. Treatment of Capital Expenditure as Revenue Expenditure:
The AO, based on the remarks of the Controller and Auditor General (CAG) and the special auditor's report, found that the assessee had wrongly claimed a deduction in respect of capital expenditure of Rs. 33.24 crores by treating repair expenses as revenue expenses. The AO capitalized the said expenses and disallowed an amount of Rs. 28.74 crores after allowing depreciation of Rs. 4.49 crores.

Judgment Analysis:

Deletion of Penalty:
The CIT(A) held that the additions/disallowances made in the assessment order and confirmed by the CIT(A) in quantum proceedings did not automatically attract the levy of penalty under section 271(1)(c). The assessee was a public limited company formed in pursuance of an agreement with the Ministry of Railway and various states. The CIT(A) found that the assessee had offered the managerial fee in subsequent years when it was received, and there was a genuine dispute with the Government of Andhra Pradesh regarding the amount payable to the subcontractor. The CIT(A) also noted that the ICAI had given an opinion on the treatment of expenditure on plant and machinery up to Rs. 1.00 lakh, and the CAG had dropped its comments on the expenditure of Rs. 33 crores.

Incorrect Depreciation Claims:
The CIT(A) found that the assessee had furnished all details and claimed 100% depreciation based on advice from the ICAI. The difference of opinion between the assessee and the AO about the allowability of depreciation did not justify the levy of concealment penalty. The CIT(A) cited the case of Reliance Petroproducts Ltd., where it was held that making an incorrect claim does not amount to furnishing inaccurate particulars.

Non-Recognition of Project Income:
The CIT(A) found that due to the ongoing dispute with the Government of Andhra Pradesh, the assessee was not sure about the additional compensation to be given to the subcontractor or when it would be paid. Therefore, showing the income in the year of receipt did not amount to concealing particulars of income. The CIT(A) held that the AO had not established that the assessee had not disclosed necessary facts or that the explanation filed was not bona fide.

Treatment of Capital Expenditure:
The CIT(A) held that there was a difference of opinion between the AO and the assessee regarding whether an expenditure was capital or revenue. The CIT(A) noted that making additions or disallowing expenses during assessment proceedings is different from invoking penal provisions. The CIT(A) concluded that the confirmation of addition by the CIT(A) did not prove that the assessee had furnished inaccurate particulars of income or an explanation that was not bona fide.

Conclusion:
The CIT(A) deleted the penalty levied by the AO under section 271(1)(c) for all four assessment years, and the tribunal confirmed the CIT(A)'s order, dismissing the AO's appeals. The tribunal emphasized that penalty provisions cannot be invoked unless it is strictly covered by the provision, and making an incorrect claim does not amount to furnishing inaccurate particulars. The appeals filed by the AO for all four assessment years were dismissed.