2018 (5) TMI 898 - AT - Income Tax

Penalty u/s 271(1)(c) - expenditure claimed in relation to development of basic designs for its train control systems as Revenue outgo - Held that - Assessing Officer has clearly specified in para 3.1 of the assessment order that the expenditure resulted in intangible assets. It may be true the intangible asset might have been eligible for depreciation only at the rate of 25% if it was considered in the same class as of patents. However, we cannot say that any inaccurate particulars were filed by the assessee. Assessee had also given reasonable explanation for its failure to produce the bills in support of its explanation. Inability to produce the bills in support of expenditure would not by itself mean that claim was not an unlawful one. There is no adverse comment of the Statutory Auditors of the assessee company, pointed out by AO. Just because assessee preferred a claim which was not found acceptable by the AO, would not mean that claim was not a bonafide or was based on inaccurate particulars. CIT (Appeals) in our opinion had rightly relied on the judgment of Hon ble Apex Court judgment in the case of Reliance Petro Products Ltd (2010 (3) TMI 80 - SUPREME COURT ) - Decided in favour of assessee.

Summary

Issues:
1. Penalty deletion under section 271(1)(c) of the Income Tax Act.
2. Claim of expenditure for development of intangible assets.
3. Failure to produce bills to support expenditure claim.

Analysis:
1. The appeal filed by the Department challenges the deletion of a penalty under section 271(1)(c) of the Income Tax Act by the ld. Commissioner of Income Tax (Appeals). The penalty was levied due to a wrong claim of expenditure made by the assessee.

2. The assessee, engaged in the business of designing technologies for Train Control Systems, claimed an expenditure of &8377;1,81,35,161 for developing base designs for various projects. The Assessing Officer considered this expenditure as creating an intangible asset and allowed depreciation at 25%. The assessee failed to produce bills to support the claim, resulting in a disallowance of &8377;1,85,67,205. The penalty was initiated for making a wrong claim of expenditure.

3. The ld. Commissioner of Income Tax (Appeals) deleted the penalty, citing that preferring an incorrect claim does not necessarily amount to furnishing inaccurate particulars. The Commissioner relied on relevant case laws to support the decision, emphasizing that the absence of bills does not automatically invalidate the claim. The Tribunal upheld the Commissioner's decision, stating that the claim was not unlawful and the explanation for not producing bills was reasonable. The Tribunal found no reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals).

4. The Tribunal concluded that the assessee's claim, though not accepted by the Assessing Officer, was not based on inaccurate particulars. The Tribunal highlighted that the claim was made after the Assessing Officer rejected the initial treatment of the expenditure, and the failure to produce bills did not prove the claim to be unlawful. The Tribunal supported the deletion of the penalty based on the principles established in relevant case laws.

5. Ultimately, the Tribunal dismissed the appeal of the Revenue, affirming the decision to delete the penalty under section 271(1)(c) of the Income Tax Act. The judgment emphasized the importance of bonafide claims and reasonable explanations in tax assessments, concluding that the penalty was rightly deleted by the ld. Commissioner of Income Tax (Appeals).