2015 (3) TMI 1394 - AT - Income Tax

Penalty u/s 271(1)(c) - addition of difference between revenue expenditure claimed and depreciation allowed - HELD THAT - Where penalty has been imposed by A.O. in view of the difference of opinion between assessee and the A.O. Assessee treated the expenditure as revenue expenditure whereas, the A.O. treated the purchase of software as capital asset. All the particulars were before the A.O. from which only he could arrive at a conclusion that assessee had debited the expenditure in the P L account. It is not a case where there was any wrong furnishing of particulars of income or concealment of income. In view of above, we do not find any infirmity in the order of Ld. CIT(A). Appeal filed by revenue is dismissed.

Summary

Issues:
- Appeal against deletion of penalty imposed under section 271(1)(c) of the Income Tax Act.

Analysis:
1. The case involved an appeal by the Revenue against the order of the Ld. CIT(A) deleting the penalty imposed under section 271(1)(c) of the Income Tax Act. The penalty was imposed by the Assessing Officer (A.O.) due to the claim of an expenditure on new software as revenue expenditure by the assessee, which the A.O. held to be of capital nature during assessment proceedings. The A.O. allowed depreciation on the capitalized amount and made the addition of the difference between the claimed expenditure and allowed depreciation, along with the penalty under section 271(1)(c).

2. The Ld. CIT(A) deleted the penalty based on the submissions made by the assessee. The Ld. CIT(A) referred to the judgment of the Hon'ble Supreme Court in the case of M/s. Dharamendra Textiles and a subsequent analysis by the Pune Bench of ITAT. The Ld. CIT(A) emphasized that the penalty under section 271(1)(c) cannot be imposed solely based on additions in the assessment order. The Ld. CIT(A) concluded that the appellant had disclosed all material facts regarding the expenses and did not conceal income or furnish inaccurate particulars. The disagreement between the appellant and the A.O. on the nature of the expenses did not amount to concealment, as the appellant had treated the expenses as revenue in nature.

3. The Revenue, aggrieved by the decision of the Ld. CIT(A), appealed before the ITAT. The Departmental Representative (D.R.) contended that the assessee wrongly claimed revenue expenditure for a capital asset, leading to inaccurate particulars and concealment of income. On the other hand, the Authorized Representative (A.R.) argued that the addition was a result of a difference in opinion and that the software purchased was revenue in nature, not capital. The A.R. highlighted that all relevant facts were provided to the A.O., who made the decision based on these details.

4. The ITAT examined the case and found that the penalty was imposed due to a difference in interpretation between the assessee and the A.O. regarding the nature of the software purchase. The ITAT observed that all necessary information was available to the A.O. to determine that the expenditure was debited correctly in the Profit & Loss account. Consequently, the ITAT upheld the decision of the Ld. CIT(A) and dismissed the appeal filed by the Revenue.

5. The judgment emphasized that the penalty under section 271(1)(c) cannot be imposed solely based on differences in interpretation between the taxpayer and the tax authority regarding the nature of expenses. As long as the taxpayer discloses all material facts and acts in good faith, penalties for concealment of income should not be levied. The decision underscored the importance of considering all relevant details and interpretations before penalizing a taxpayer under the Income Tax Act.