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2017 (10) TMI 938 - AT - Income TaxPenalty u/s 271(1)(c) - allowable business expenditure or capital expenditure - Held that - We are of the considered view that such an expense was an allowable expense and hence the addition made by the AO was in itself not on right footing. Without prejudice, as the stand of the AO has been upheld by the earlier Ld. CIT(A) while deciding the appeal for the current year, it is evidently clear that the issue is certainly debatable as making distinction between the capital and revenue expenditure itself requires appreciation of full range of facts, which may bring in subjectivity in the matter. Therefore, by no set of standards, two individuals can hold similar views for capital or revenue nature of expenditure. In the case of the assessee, evidently, the stand taken by the AO is in contrast to my stand. Moreover, in the light of various decisions cited above, such a claim cannot be held as capital in nature. It is also a settled law that penalty proceedings are independent assessment proceedings and therefore, merely because the addition made by the AO has been upheld by the Ld. CIT(A), does not imply that the assessee had filed inaccurate particulars of income . We further note that the Tribunal in the case of the assessee for the assessment year 2007-08 title GE Capital Business Process Management Serves Pvt. Ltd. vs. ACIT 2015 (11) TMI 68 - ITAT DELHI has deleted the quantum addition on account of license fee to the extent of ₹ 2,19,60,467/-. Therefore, we uphold the order of the Ld. CIT(A) of deleting the penalty in dispute and reject the grounds raised by the Revenue. Appeal filed by the Department stand dismissed.
Issues Involved:
1. Whether the CIT(A) was right in cancelling the penalty imposed by the AO under Section 271(1)(c) of the Income Tax Act, 1961. 2. Whether the assessee failed to discharge the onus cast on it by Explanation 1 to Section 271(1)(c) of the Income Tax Act, 1961. 3. Whether the assessee failed to prove the bonafide of its explanations that facts material to the computation of its total income were correctly disclosed. 4. Whether the penalty under Section 271(1)(c) of the Income Tax Act, 1961 is a civil liability meant to provide for loss of revenue. Detailed Analysis: 1. Cancellation of Penalty by CIT(A): The Revenue contested the CIT(A)'s decision to cancel the penalty of ?73,51,900/- imposed by the AO under Section 271(1)(c) of the Income Tax Act, 1961. The AO had initially imposed the penalty on the grounds that the assessee had furnished inaccurate particulars of its income with the intention of suppressing taxable income. However, the CIT(A) found that the claim made by the assessee was debatable and could not be held as capital in nature. The Tribunal upheld the CIT(A)'s decision, noting that the addition made by the AO was not on the right footing and that the issue was certainly debatable. 2. Onus Under Explanation 1 to Section 271(1)(c): The Tribunal examined whether the assessee failed to discharge the onus cast on it by Explanation 1 to Section 271(1)(c). It was noted that the onus is on the assessee to show that there was no intention of concealment. The Tribunal referred to various judicial precedents, including the Supreme Court's rulings in CIT Vs Anwar Ali, Addl. CIT Vs Jeevan Lal Shah, and B.A. Balasubramaniam and Bros. Co. Vs CIT, which clarified that mens rea (intention) was no longer necessary for the imposition of penalty after the insertion of Explanation 1. The Tribunal concluded that the assessee had not concealed particulars of income or furnished inaccurate particulars, and thus the penalty was not warranted. 3. Bonafide of Assessee's Explanations: The Tribunal considered whether the assessee failed to prove the bonafide of its explanations regarding the computation of its total income. It was noted that the assessee had made a claim based on its interpretation of the law, which was debatable. The Tribunal cited the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., which stated that the legislature did not intend to impose penalty on every assessee whose claim was rejected by the AO. The Tribunal found that the assessee's claim was made in good faith and was supported by a reasonable interpretation of the law. 4. Penalty as Civil Liability: The Tribunal addressed whether the penalty under Section 271(1)(c) is a civil liability meant to provide for loss of revenue. It was noted that penalty proceedings are quasi-criminal in nature, requiring the Department to establish that the assessee had concealed income or furnished inaccurate particulars. The Tribunal referred to the Supreme Court's rulings in Dharmendra Textile Processors and Atul Mohan Bindal, which clarified that mens rea is not necessary for civil penalties, but the conditions stated in Section 271(1)(c) must be satisfied. The Tribunal concluded that the AO had not established that the assessee had concealed income or furnished inaccurate particulars, and thus the penalty was not justified. Conclusion: The Tribunal upheld the CIT(A)'s decision to cancel the penalty imposed by the AO under Section 271(1)(c) of the Income Tax Act, 1961. It was concluded that the issue was debatable, the assessee had not concealed income or furnished inaccurate particulars, and the penalty was not warranted. The appeal filed by the Department was dismissed.
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