2018 (9) TMI 966 - AT - Income Tax

Penalty u/s 271(1)(c) - expenditure of webhosting and misc. expenditure for website development - Held that - when the assessee has come up with bonafide claim, even if it is not accepted, it would not per se tantamount to furnishing inaccurate particulars so as to attract the penalty proceedings u/s 271(1)(c) Furthermore, Incurring of ₹ 37,52,700/- by the assessee on share capital have also been duly explained by the assessee by debiting the same under head legal and professional charges . Assessee has suo-moto disallowed an amount of ₹ 7,00,000/- relating to increase in capital and RS.5,00,000/- pertaining to filing fees and ₹ 2,00,000/- on account of stamp duty in computation of income debited under the head rent, rates and taxes. All these facts go to prove that the assessee has come up with bonafide claim and even if the same is proved to be wrong, it cannot attract the provisions contained u/s 271 (1)(c) of the Act. AO/CIT (A) have erred in levying/ enhancing the penalty which is not sustainable in the eyes of law, hence ordered to be deleted. Consequently, appeal filed by the assessee is hereby allowed.

Summary

Issues Involved:
1. Imposition of penalty on disallowance of expenditure for website upgradation.
2. Imposition of penalty on addition of expenditure for fee paid to Registrar of Companies and stamp duty for increase in authorized capital.

Detailed Analysis:

1. Imposition of penalty on disallowance of expenditure for website upgradation:

The appellant, M/s. Times Internet Limited, challenged the penalty imposed on the disallowance of ?16,35,151/- incurred on website upgradation, which was treated as capital expenditure in the assessment order dated 13.12.2010 under section 143(3) of the Income-tax Act, 1961. The assessee argued that the issue was debatable and not a clear case of concealment or furnishing inaccurate particulars of income. The learned Commissioner of Income Tax (Appeals) had failed to appreciate this and erroneously upheld the penalty.

The Tribunal noted that the Assessing Officer (AO) had issued a show-cause notice under section 274, which did not clearly specify whether the penalty was for concealment of income or for furnishing inaccurate particulars. This ambiguity in the notice was crucial, as highlighted by the Hon’ble Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory & Ors. (359 ITR 565), which mandates that the grounds for penalty must be clearly stated.

The Tribunal further observed that the expenditure on website upgradation was a genuine business expense aimed at keeping pace with technological developments and did not create any enduring benefit. This was supported by precedents in the assessee’s own case for AYs 2004-05 & 2005-06, where similar expenditures were treated as revenue in nature. The Tribunal concluded that the assessee had made a bona fide claim, and even if it was not accepted, it did not amount to furnishing inaccurate particulars of income. Therefore, the penalty under section 271(1)(c) was not justified.

2. Imposition of penalty on addition of expenditure for fee paid to Registrar of Companies and stamp duty for increase in authorized capital:

The assessee also contested the penalty on the addition of ?37,52,700/- incurred on fees paid to the Registrar of Companies (ROC) and stamp duty for increasing the authorized capital. The assessee argued that this was an inadvertent bona fide claim, and the penalty was not warranted as the company had been assessed at a loss of ?71,97,11,614/-.

The Tribunal noted that the AO had invoked Explanation 4 to section 271(1)(c) and levied a penalty of ?12,42,492/-. However, the Commissioner of Income Tax (Appeals) had deleted the penalty related to disallowance under section 14A but upheld and enhanced the penalty for the capital expenditure on website creation and development.

The Tribunal emphasized that the penalty proceedings are distinct from assessment proceedings and require clear evidence of concealment or furnishing inaccurate particulars. The assessee had disclosed all relevant facts and made a bona fide claim, which was not accepted. The Tribunal referred to the Hon’ble Delhi High Court’s decision in CIT vs. DCM Limited (359 ITR 102), which held that making a claim during assessment proceedings, even if erroneous, does not automatically attract penalty unless there is evidence of concealment or furnishing inaccurate particulars.

Additionally, the Tribunal highlighted that the expenditure on share capital was duly explained and debited under 'legal and professional charges'. The assessee had also made suo moto disallowances, demonstrating a bona fide approach.

Conclusion:

In light of the above observations, the Tribunal concluded that the AO and CIT (A) had erred in levying and enhancing the penalty. The penalty was not sustainable as the assessee had not been specifically made aware of the charges, and the claims made were bona fide. Consequently, the appeal filed by the assessee was allowed, and the penalty was ordered to be deleted.

Order Pronounced:

The order was pronounced in open court on 14th September 2018.