2017 (11) TMI 373 - AT - Income Tax

Penalty u/s 271(1)(c) - addition on account of expenses on payment made on behalf of foreign ship owners - Held that - After going through the assessment order, the Assessing Officer has made payment to the tune of ₹ 20,53,28,258/- and the Assessing Officer has not made any charge on this addition regarding imposition of penalty u/s. 271(1)(c) of the Act in the assessment order and this issue has been discussed elaborately by the ld. CIT(A). In view of the all, we are not inclined to disturb the impugned order of ld. CIT(A). Therefore, it is held that the ld. CIT(A) has rightly deleted the penalty on both the issues. Accordingly, the appeal of the Revenue being devoid of merits deserves to fail. - Decided in favour of assessee.

Issues Involved:
1. Deletion of penalty imposed under Section 271(1)(c) of the I.T. Act, 1961.
2. Disallowance of repair and maintenance expenses by treating them as capital expenditures.
3. Ad hoc disallowance of expenses on payments made on behalf of foreign ship owners.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed under Section 271(1)(c) of the I.T. Act, 1961:
The primary issue in this case is whether the penalty of ?20,87,424/- imposed under Section 271(1)(c) for the assessment year 2008-09 was justified. The CIT(A) had deleted this penalty, and the Revenue appealed against this deletion. The penalty was initially imposed by the Assessing Officer (AO) based on the disallowance of repair and maintenance expenses and the ad hoc disallowance of expenses on payments made on behalf of foreign ship owners.

2. Disallowance of Repair and Maintenance Expenses by Treating Them as Capital Expenditures:
The AO had disallowed ?20,34,723/- from the profit and loss account under the head 'renewals and replacement,' treating these as capital expenditures instead of revenue expenditures. The ITAT had confirmed this addition. The CIT(A) noted that the AO had initiated penalty proceedings for this disallowance by recording satisfaction in the assessment order. However, the CIT(A) emphasized that merely making a claim that is not sustainable in law does not attract penalty provisions. The CIT(A) relied on various judicial precedents, including CIT vs. Amtek Auto Ltd., to conclude that the decision to treat an expense as capital instead of revenue is subjective and does not necessarily imply concealment of income or furnishing inaccurate particulars.

3. Ad Hoc Disallowance of Expenses on Payments Made on Behalf of Foreign Ship Owners:
The AO had disallowed ?41,06,565/- on an estimated basis (2% of the total expenses of ?20,53,28,258/-) for payments made on behalf of foreign ship owners, citing lack of documentary evidence. The CIT(A) observed that the AO did not record any satisfaction regarding concealment of income or furnishing inaccurate particulars for this disallowance in the assessment order. The CIT(A) further noted that the AO's disallowance was based on estimation, which inherently lacks specific evidence of inaccurate particulars. The CIT(A) concluded that penalty cannot be levied on estimated disallowances, as they do not constitute concrete evidence of concealment or inaccuracy.

Conclusion:
After reviewing the submissions and the materials on record, the ITAT upheld the CIT(A)'s decision to delete the penalty. The ITAT agreed with the CIT(A) that there was no material evidence to support the imposition of penalty under Section 271(1)(c) for either the disallowance of repair and maintenance expenses or the ad hoc disallowance of expenses on behalf of foreign ship owners. The ITAT emphasized that the AO did not provide sufficient justification for the penalty, and the CIT(A) had correctly applied the relevant legal principles and judicial precedents. Consequently, the appeal by the Revenue was dismissed, and the penalty deletion was upheld.

Final Order:
The appeal is dismissed, and the order pronounced in the open court on 12.10.2017 confirms the deletion of the penalty imposed under Section 271(1)(c) of the I.T. Act, 1961.

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