2016 (8) TMI 521 - HC - Income Tax

Penalty under section 271(1)(c) - claim of capital expenditure - Held that - he claims have been made by the assessee on the advice of the Chartered Accountant handling the work of the assessee company and that the claim is technically allowable as regards to scientific research and R & D expenses looking to the work of new product development undertaken by the assessee. All facts, including bills & list of parties from whom these capital assets were purchased, duly audited by the Chartered Accountant, were filed in the assessment proceedings and as per the opinion of the Chartered Accountant looking after the case, the assessee company had claimed the deduction on these two items. Thereafter, the Tribunal observed that the bona fide explanation offered by the assessee was negatived by the Assessing Officer and on that basis a return cannot be said to be false unless there is an element of deliberateness in it. The Tribunal, therefore, reversed the order of the Commissioner of Income-tax (Appeals) and cancelled the penalty. We are in complete agreement with the view taken by the Tribunal. The Tribunal has rightly reversed the order of the Commissioner of Income-tax (Appeals) and cancelled the penalty. - Decided in favour of assessee

Summary

Issues:
Challenge to order of Income-tax Appellate Tribunal reversing Commissioner of Income-tax (Appeals) finding on penalty under section 271(1)(c) of Income-tax Act, 1961.

Analysis:
1. Substantial Question of Law: The High Court framed the substantial question of law as to whether the Tribunal was correct in law in canceling the penalty order under section 271(1)(c) of the Income-tax Act.

2. Facts of the Case: The appellant-revenue challenged the penalty order imposed under section 271(1)(c) based on claims of deductions under various sections of the Income-tax Act. The Commissioner of Income-tax (Appeals) confirmed the penalty, but the Tribunal later reversed this decision.

3. Revenue's Contention: The counsel for the revenue argued that the Tribunal erred in canceling the penalty order confirmed by the Commissioner of Income-tax (Appeals). The revenue contended that the appellant made false claims regarding capital expenditure, R & D expenses, and excessive deductions, misleading the department.

4. Commissioner's Findings: The Commissioner of Income-tax (Appeals) upheld the penalty based on evidence of false claims and tax evasion by the appellant. The Commissioner noted discrepancies in the capital expenditure for scientific research, R & D expenses, and excessive deductions, supported by statements and lack of evidence during a search operation.

5. Tribunal's Decision: The Tribunal considered the appellant's claims were made based on advice from their Chartered Accountant and technical eligibility for deductions. The Tribunal emphasized that a return cannot be deemed false without deliberate intent. Hence, the Tribunal reversed the Commissioner's decision and canceled the penalty.

6. High Court's Conclusion: After reviewing the facts, the High Court agreed with the Tribunal's reasoning. The High Court upheld the Tribunal's decision to cancel the penalty, stating that the explanation provided by the appellant was genuine, and there was no deliberate falsification. Consequently, the High Court dismissed the appeal, ruling in favor of the assessee against the revenue.