2018 (12) TMI 1319 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee while claiming deduction of administrative expenses did not furnish any evidence - Held that - Mere rejection of claim, made by the assessee, would not ipso-facto, result in penalty imposed under section 271(1)(c) of the Act as was held in CIT vs Reliance Petro Products Pvt. Ltd. ( 2010 (3) TMI 80 - SUPREME COURT ), wherein observed that merely because the assessee s had claimed the expenditure, which claim was not accepted or not acceptable to the Revenue, that by itself would not in our opinion attract penalty under Section 271(1)(c). Before penalty can be imposed under Section 271(1)(c) of the Act, the Revenue in terms thereof must be satisfied that the assessee had concealed particulars of income or furnished inaccurate particulars of his income. In case, where an assessee makes a complete disclosure of facts it then cannot be said to have concealed the particulars of income or furnished inaccurate particulars of income. Thus, mere making a claim for benefit under a particular provision of law would not attract penalty under Section 271(1)(c) if there is absence of concealment and / or furnishing of inaccurate particulars of income. Thus the penalty imposed under section 271(1)(c) of the Act is directed to be deleted. - Decided in favour of assessee.

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance of administrative expenses claimed by the assessee.
3. Determination of reasonable expenditure for maintaining corporate structure.
4. Tax computation on capital gains at concessional rates.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the imposition of a penalty of ?4,30,000/- under section 271(1)(c), arguing that the relevant limb in the notice under section 274 r.w.s 271(1)(c) was not struck down by the Assessing Officer (AO). The Tribunal referenced the decision in Reliance Petro Products, which held that no penalty is leviable if the assessee furnished particulars for such a claim, even if the claim was wrong. The Tribunal also cited the case of M/s Tata Communication Transformation Services Ltd. vs DCIT, emphasizing that the AO's failure to strike off irrelevant portions in the notice indicated non-application of mind, rendering the penalty proceedings invalid.

2. Disallowance of Administrative Expenses Claimed by the Assessee:
The assessee claimed administrative expenses amounting to ?13,99,521/- as deductions against long-term capital gains, which the AO disallowed. The Tribunal, in its earlier order dated 14/09/2017, directed the AO to determine reasonable expenditure required to maintain the corporate status of the assessee and allow the same as revenue expenditure. The AO allowed only certain expenses such as filing fees, professional tax, audit fees, and bank charges, while disallowing others including salary and allowances, stock exchange expenses, and demat charges.

3. Determination of Reasonable Expenditure for Maintaining Corporate Structure:
The Tribunal noted that the assessee had generated income only through capital gains and had not commenced business activities during the year under consideration. However, as a company, it was required to incur certain expenses to maintain its corporate status. The Tribunal directed that 25% of the salary expenses paid to directors and staff should be considered as revenue expenses incurred for maintaining the corporate structure. Additionally, 50% of the office expenses were allowed, while interest expenditure, demat charges, and security transaction charges were disallowed as they were not related to maintaining the corporate structure.

4. Tax Computation on Capital Gains at Concessional Rates:
The assessee contended that the AO computed tax on capital gains arising from off-market transactions at regular rates instead of concessional rates. The Tribunal set aside this issue to the file of the AO to examine the assessee's claim and compute the tax accordingly.

Conclusion:
The Tribunal allowed the appeal of the assessee partly, directing the deletion of the penalty imposed under section 271(1)(c) and the re-computation of allowable expenses as per the detailed discussions. The AO was instructed to determine the expenses required for maintaining the corporate structure and to examine the tax computation on capital gains at concessional rates. The judgment emphasized adherence to principles of natural justice and proper application of mind by the AO in penalty proceedings.

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