2016 (4) TMI 345 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - Held that - The assessee has shown the nature of expenditure in its books of account. Merely claiming of expenditure under wrong head would not make the assessee liable for penalty under the provisions of section 271(1)(c) of the Act. It is not the case of Revenue that the assessee has not disclosed the details of expenditure claimed. The Hon ble Apex Court in the case of Commissioner of Income Tax Vs. Reliance Petroproducts (P.) Ltd. (2010 (3) TMI 80 - SUPREME COURT ) has held that penalty u/s. 271(1)(c) cannot be levied merely because the assessee had claimed expenditure which was not accepted by the Revenue. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2001-02 on demerger expenses claimed by the assessee.

Detailed Analysis:

1. Background and Facts:
The assessee, engaged in manufacturing machinery, had demerger expenses disallowed by the Assessing Officer as capital expenditure. Penalty proceedings were initiated, resulting in a penalty of Rs. 4,75,000 under section 271(1)(c). The Commissioner of Income Tax (Appeals) upheld the penalty on demerger expenses, leading to the appeal before the Tribunal.

2. Assessee's Arguments:
The assessee argued that demerger expenses were incurred for business efficiency, approved by the Bombay High Court, and were Revenue in nature. Citing relevant case laws, the assessee contended that claiming expenses in good faith without concealment should not attract penalty, supported by decisions like Reliance Petroproducts (P.) Ltd.

3. Revenue's Position:
The Revenue contended that the demerger expenses were capital in nature, as they were related to stamp duty for transferring capital assets during demerger. The Commissioner's decision to levy penalty was supported, emphasizing that the nature of the expenses was clear from the records.

4. Tribunal's Decision:
The Tribunal noted the debatable nature of whether demerger expenses were Revenue or capital in nature. While the assessee's expenses differed from legal charges in cited cases, the Tribunal emphasized that wrongly claiming expenses did not warrant penalty under section 271(1)(c). Referring to the Reliance Petroproducts case, the Tribunal highlighted that incorrect claims do not constitute furnishing inaccurate particulars for penalty purposes.

5. Conclusion:
Based on the facts and legal precedents, the Tribunal concluded that the penalty under section 271(1)(c) was not justified. The order was set aside, and the appeal of the assessee was allowed, emphasizing that incorrect claims, without concealment or inaccurate particulars, do not warrant penalty.

In essence, the Tribunal's decision focused on the nature of demerger expenses, the distinction from legal charges, and the absence of concealment or inaccurate particulars, leading to the allowance of the assessee's appeal against the penalty levied.