2019 (4) TMI 191 - AT - Income Tax

Penalty u/s 271(1)(c) - addition made on account of software expenses - capital or revenue expenses - furnishing of inaccurate particulars of income - assessment order framed u/s 143(3) - HELD THAT - The assessee has furnished all the particulars of software expenses claimed in the income tax return. As such there was no deliberate act on the part of the assessee to furnish inaccurate particulars of income by claiming software expenses as revenue in nature. Therefore, in our considered view the penalty levied u/s 271(1)(C) is unsustainable in the given facts and circumstances. See M/S SIDHARTHA ENTERPRISES, LUDHIANA 2009 (7) TMI 22 - PUNJAB AND HARYANA HIGH COURT penalty is imposed only when there is some element of deliberate default and not a mere mistake. The assessee has claimed software expenses under the head software expenses as evident from the order of the AO which shows that the software expenses were claimed as revenue in nature under the bonafides belief. Had the intention of the assessee been malafide then it should have claimed the same under any other head to avoid the attention - See KANBAY SOFTWARE INDIA (P) LIMITED. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX. 2009 (4) TMI 499 - ITAT PUNE-A . Exemption u/s.10A - whether the deduction under section 10A needs to be worked out after setting off the brought forward losses? - gains of the business of an eligible undertaking has to be made independently - HELD THAT - M/S YOKOGAWA INDIA LTD. 2016 (12) TMI 881 - SUPREME COURT there remains no ambiguity that the assessee shall work out the deduction u/s 10A from its total income before allowing the brought forward losses. We hold accordingly. Hence the ground of appeal of the assessee is allowed.

Summary

Issues:
1. Denial of exemption under section 10A of the Income Tax Act, 1961.
2. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961.

Issue 1: Denial of exemption under section 10A:
The case involved an appeal by the assessee against the denial of exemption under section 10A of the Income Tax Act, 1961. The Assessing Officer (AO) set off brought forward losses before calculating the deduction under section 10A, resulting in a reduced deduction amount. The Commissioner of Income Tax (Appeals) upheld this decision. However, the appellate tribunal referred to a Supreme Court judgment in the case of CIT & ANR. vs. M/s Yokogawa India LTD., which clarified that the deduction under section 10A should be calculated independently before setting off any losses. Relying on this judgment, the tribunal allowed the appeal, stating that the deduction under section 10A should be computed before adjusting any brought forward losses.

Issue 2: Confirmation of penalty under section 271(1)(c):
The second issue revolved around the confirmation of a penalty under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer imposed a penalty on the assessee for furnishing inaccurate particulars of income related to software expenses treated as revenue in nature. The Commissioner of Income Tax (Appeals) upheld this penalty, stating that the assessee's failure to challenge the quantum addition did not absolve them from the penalty. However, the tribunal disagreed, noting that the assessee had disclosed all software expenses in the return without any deliberate intent to provide inaccurate information. Citing relevant case law, including a judgment from the Hon'ble Punjab and Haryana High Court, the tribunal concluded that the penalty was not justified as there was no deliberate default on the part of the assessee. The tribunal emphasized the bona fide belief of the assessee in claiming software expenses as revenue, further supporting its decision to overturn the penalty imposed by the lower authorities.

In summary, the appellate tribunal allowed both appeals, overturning the denial of exemption under section 10A and the confirmation of the penalty under section 271(1)(c). The judgments were based on legal interpretations and precedents, ensuring a fair and just outcome for the assessee in both instances.