2017 (11) TMI 1544 - AT - Income Tax

Penalty u/s 271(1)(c) - difference of opinion as to a particular expenditure being revenue in nature or capital - Held that - It is not a case that the assessee had not been able to explain any expenditure or had failed to give any details and the Assessing Officer had added the same to the income. It is only a case where there is a difference of opinion as to a particular expenditure being revenue in nature or capital in nature. It is evident from the records that the assessee had given all particulars of expenditure and income and had disclosed all facts to the Assessing Officer. It is not the case where some new facts were discovered during the course of assessment proceedings or that the Assessing Officer had dug out some information which was not furnished by the assessee. Apex Court in the case of Commissioner of Income Tax vs Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT ) has also held that mere making of claim which is unsustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee - Decided in favour of assessee.

Summary

Issues:

1. Confirmation of penalty u/s 271(1)(c) of the Income Tax Act, 1961 for disallowance of expenses.

Analysis:

Confirmation of Penalty:
The appeal was filed against the order confirming a penalty of ?4,52,648 imposed under section 271(1)(c) of the Income Tax Act, 1961. The dispute arose from a disallowance of ?13,31,713 related to the treatment of expenditure on the installation of a new transformer. The assessee claimed the entire expense as a revenue expenditure, while the Assessing Officer considered it capital in nature. The Assessing Officer added back the balance to the income of the assessee, leading to the imposition of the penalty. The assessee challenged the penalty, arguing that it was not a case of concealment or furnishing inaccurate particulars of income, but merely a difference in opinion on the nature of the transaction.

Assessee's Arguments:
The assessee contended that no penalty should be levied for a mere disallowance of expenses due to a difference in opinion between the assessee and the Department. It was emphasized that the Department had accepted the transaction as genuine by allowing depreciation, indicating no intention of concealment or inaccurate reporting. The assessee cited various case laws to support the argument that penalty under section 271(1)(c) was not applicable when relevant details were disclosed in the income tax return.

Department's Arguments:
The Departmental Representative relied on a judgment by the Delhi High Court, emphasizing that penalties serve as a deterrent against baseless claims by assessees. It was argued that if a claim is incorrect in law and lacks a bona fide basis, the assessee should be liable for penalty under section 271(1)(c). The Department highlighted that both the Assessing Officer and the Commissioner of Income Tax(A) had concurred on the imposition of the penalty.

Judgment:
The Tribunal noted that the dispute was solely based on the difference in opinion regarding the nature of the expenditure, not on concealment or inaccurate reporting. Referring to precedents, including the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., the Tribunal held that a claim unsustainable in law does not automatically constitute inaccurate reporting. Since there was no evidence of mala fide intent by the assessee, the penalty was deemed unwarranted. Accordingly, the order of the Commissioner of Income Tax(A) was set aside, and the Assessing Officer was directed to delete the penalty. The appeal of the assessee was allowed, emphasizing the distinction between assessment and penalty proceedings.

Conclusion:
The Tribunal's decision focused on the absence of mala fide intent and the mere difference in opinion on the nature of the expenditure, leading to the conclusion that the penalty under section 271(1)(c) was not justified. The judgment underscored the importance of bona fide claims and the need for penalties to deter baseless assertions, ultimately ruling in favor of the assessee and directing the deletion of the penalty.