2021 (2) TMI 1011 - AT - Income Tax

Penalty u/s. 271(1)(c) - disallowance of legal and professional expenses and disallowance account of building repair expenses - HELD THAT - Disallowance of legal and professional expenses has been made merely on the ground that the invoice mentions that the assessee has received hence it was treated as capital in nature and not revenue in nature. Simply because, the consultancy services has been treated as capital in nature by the Assessing Officer that does not mean that assessee has furnished any inaccurate particulars of income so as to warrant levy of penalty u/s.271(1)(c), especially when there is no doubt about the factum of incurring of such expenditure and the genuineness of which stands established. In these facts, the penalty on such disallowance is directed to be deleted. Building repair expenses disallowance assessee has carried out repair and maintenance for which it has paid to third party M/s. Sarvamanglam Pvt. Ltd. and these repair and maintenance was carried out on the rented place taken by the assessee for its business. However, out of total disallowance of ₹ 31,93,239/- the amount finally sustained in the quantum proceedings was ₹ 19.93 lacs. Thus, part of the same expenditure has been allowed. During the course of penalty proceedings, before the ld. CIT (A), assessee has filed all the details and evidences for the amount of ₹ 19,93,239/- for which ld. CIT(A) has refused to admit. Penalty proceedings are separate and distinct from assessment proceedings and the assessee during the course of penalty proceedings can substantiate its claim by providing evidences or explaination that it is not guilty for furnishing of any inaccurate particulars of income - Penalty is not adjunct to assessment, it s a separate proceedings and assessee has right to rebut the charges levied on him which he may not have in quantum due to any circumstances. Accordingly, the action of the ld. CIT (A) to reject these evidences which goes to prove the incurring of expenditure by the assessee which is ostensibly revenue in nature - it cannot be held that the assessee had furnished any inaccurate particulars of income so as to warrant any levy of penalty u/s. 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
Penalty u/s. 271(1)(c) for disallowance of 'legal and professional' expenses and building repair expenses.

Legal and Professional Expenses Disallowance:
The Assessing Officer disallowed legal and professional charges of &8377; 36,11,832/- based on the transfer pricing order's recommendation. The payment was made to the holding company for consultancy services. The Assessing Officer treated the expenditure as capital in nature, leading to the penalty initiation. The Tribunal found that the disallowance was solely based on the nature of the consultancy services being considered capital. However, as the genuineness of the expenditure was established, and no inaccurate particulars were furnished, the penalty was deleted.

Building Repair Expenses Disallowance:
The Assessing Officer disallowed &8377; 31,93,239/- for repair and maintenance expenses, citing lack of evidence and business purpose. The penalty was confirmed based on the quantum proceedings. The assessee provided additional evidence during the penalty proceedings, including lease agreements and vouchers. The Tribunal noted that penalty proceedings are distinct from assessments and allow the assessee to substantiate claims with new evidence. As the evidence proved the revenue nature of the expenses, the penalty was deleted, despite part of the disallowance being upheld in the quantum proceedings.

Conclusion:
The Tribunal allowed the appeal, deleting the penalties imposed for both disallowances. The decision emphasized the distinction between assessment and penalty proceedings, highlighting the assessee's right to provide additional evidence during penalty proceedings to support their claims and rebut charges of inaccurate particulars of income.