2018 (3) TMI 1088 - HC - Income Tax

Penalty u/s 271(1)(c) - waiver of loan - disallowance being software expenses. - Held that - Tribunal found that the parent company of the assessee waived a loan of ₹ 3.41 crores which the assessee reduced from the gross value of assets from the schedule of fixed assets under the Companies Act, 1956. The Tribunal noted that all the facts in relation thereto were disclosed by the assessee. The assessee took a position which the Tribunal held was a possible one. The Tribunal further held that merely because the judgements ultimately took a contrary view it would not warrant the imposition of penalty. There were no mala-fides found on the part of the assessee. Tribunal held that the penalty was also imposed on a disallowance being software expenses. The issue related to the purchase of software by the assessee to carry out its business activities in a more efficient manner. The assessee claimed the same to be revenue expenditure, whereas the Assessing Officer treated the same as capital in nature. The Tribunal noted that a judgement of the Division Bench of the Delhi High Court in CIT Vs GE Capital Services Ltd. (2007 (7) TMI 185 - DELHI HIGH COURT) supported the assessee s view. The Tribunal found that it was a debatable question and held, therefore, that the imposition of penalty was not justified. - Decided against revenue

Summary

Issues:
1. Penalty imposed by the Assessing Officer and upheld by the CIT (Appeals) deleted by the Income Tax Appellate Tribunal.
2. Waiver of loan by the parent company and its impact on the gross value of assets.
3. Disallowance of software expenses claimed as revenue expenditure by the assessee.

Analysis:
1. The High Court reviewed an appeal against the deletion of a penalty imposed by the Assessing Officer and upheld by the CIT (Appeals) by the Income Tax Appellate Tribunal for the assessment year 2005-2006.

2. The Tribunal found that the parent company of the assessee waived a loan of &8377; 3.41 crores, which the assessee reduced from the gross value of assets under the Companies Act, 1956. The Tribunal noted that all relevant facts were disclosed by the assessee, and the position taken by the assessee was considered possible. Despite a contrary view in judgments, the Tribunal ruled that no penalty was warranted as there were no mala-fides found on the part of the assessee.

3. Additionally, the Tribunal addressed the penalty imposed on the disallowance of &8377; 2,35,100/- for software expenses claimed as revenue expenditure by the assessee. The issue revolved around the purchase of software for business activities, with the assessee claiming it as revenue expenditure while the Assessing Officer treated it as capital in nature. Citing a judgment from the Delhi High Court, the Tribunal deemed the matter debatable and concluded that the penalty imposition was unjustified.

4. The High Court found no grounds to interfere with the Tribunal's exercise of discretion in these circumstances, leading to the dismissal of the appeal against the Tribunal's decision.

This detailed analysis covers the issues of penalty deletion, loan waiver impact, and software expenses disallowance, providing a comprehensive understanding of the judgment's key points and legal reasoning.