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2021 (7) TMI 835 - AT - Income TaxPenalty u/s. 271(1)(c) - expenditure on account of annual exchange service charge - whether revenue expenditure or capital in nature - HELD THAT - we find that the assessee s claim is that an expenditure on account of annual exchange service charge is to be treated as revenue expenditure. In our considered opinion, the aforesaid claim, by no stretch of imagination can be said to be ex-facie bogus - a disallowance of the same cannot lead to the conclusion that the assessee is guilty of furnishing of inaccurate particulars of income or concealment of income. The conduct of the assessee is not contumacious to warrant levy of penalty u/s.271(1)(c) of the Act. In this regard, we draw support from the decision of the larger bench of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa 1969 (8) TMI 31 - SUPREME COURT or the proposition that an authority may not levy penalty unless the conduct of the assessee is found to be contumacious. The penalty u/s.271(1)(c) is not at all leviable on the facts of the case. The reference to the decision of Hon'ble Supreme Court in the case of Dharmender Textile 2008 (9) TMI 52 - SUPREME COURT and Hon'ble Delhi High Court in the case of CIT vs. Zoom Communications Pvt. Ltd. 2010 (5) TMI 34 - DELHI HIGH COURT by the A.O. are not at all relevant on the facts here. On the facts of this case, the aforesaid two Supreme Court s decisions referred by us are germane and applicable on all fours on the facts of this case. We agree with the ld. Counsel of the assessee that the ld. CIT(A) has made irrelevant observation in his appellate order, which are not only factually incorrect but have no relationship to the issue by way of penalty u/s.271(1)(c). This amply reflects lack of application of mind by the ld. CIT(A). Assessee has also further raised the ground that since the assessee has been made liable to pay tax only on book profit, the penalty u/s.271(1)(c) cannot be sustained with reference to addition in normal computation. For this proposition, he has relied upon the decision of Hon'ble Supreme Court in the case of Nalwa Sons Investment Ltd 2012 (5) TMI 150 - SC ORDER and CBDT Circular in this regard. In our considered opinion, since we have already held on merits that the penalty levied is not at all sustainable, adjudication of this aspect of ld. Counsel of the assessee s submission is only of academic interest. Hence, we are not engaging into the same. In the result, we set aside the orders of the authorities below and direct that the penalty in this case be deleted. Appeal by the assessee stands allowed.
Issues Involved:
1. Legality and validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act. 2. Justification and excessiveness of the penalty amount. 3. Applicability of penalty under Section 271(1)(c) when the assessed income under normal provisions and Section 115JB are the same. 4. Whether reasonable opportunity of being heard was provided before imposing the penalty. 5. Nature of the expenditure (revenue vs. capital) and its implications on penalty. 6. Application of Explanation 1 to Section 271(1)(c) in the context of furnishing inaccurate particulars of income. Detailed Analysis: 1. Legality and Validity of the Penalty Imposed under Section 271(1)(c): The appellant challenged the legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act, asserting that it was illegal, invalid, and bad in law. The penalty was levied based on the disallowance of ?35,92,393/- treated as capital expenditure instead of revenue expenditure. The Assessing Officer (A.O.) initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. However, the assessee contended that the expenditure was genuinely claimed as revenue expenditure and that the mere disallowance of a claim does not automatically justify the imposition of a penalty. 2. Justification and Excessiveness of the Penalty Amount: The appellant argued that the penalty amount of ?11,93,303/- was unjustified, unwarranted, and excessive. The A.O. relied on various judicial precedents, including Union of India vs. Dharmendra Textile Processors, Mak Data Pvt. Ltd. vs. CIT, and CIT vs. Zoom Communications Pvt. Ltd., to justify the penalty. However, the appellant maintained that the claim was bona fide and that the expenditure did not result in the creation of any capital asset or benefit of an enduring nature. 3. Applicability of Penalty under Section 271(1)(c) when Assessed Income under Normal Provisions and Section 115JB are the Same: The appellant highlighted that the income determined under normal provisions was ?1,10,60,730/-, while the income determined under Section 115JB was ?1,87,44,509/-. Since the tax was levied based on the provisions of Section 115JB, the appellant argued that no penalty under Section 271(1)(c) should be levied for additions made under normal provisions, as there was no loss of revenue. This argument was supported by CBDT Circular No. 25/2015 and judicial precedents such as CIT vs. Nalwa Sons Investments Ltd. 4. Reasonable Opportunity of Being Heard: The appellant contended that the penalty was imposed without providing a reasonable opportunity of being heard, which is a violation of the principles of natural justice. The CIT(A) confirmed the penalty without adequately addressing the issues raised in the appeal or the facts of the case, instead providing a theoretical explanation of Section 271(1)(c) and the meaning of concealment. 5. Nature of the Expenditure (Revenue vs. Capital) and Its Implications on Penalty: The appellant argued that the expenditure incurred for Exchange Server Services was an annual subscription for services rendered and should be treated as revenue expenditure. The A.O. treated it as capital expenditure, leading to the addition and subsequent penalty. The appellant maintained that the expenditure did not result in any capital asset or benefit of an enduring nature and that the claim was a matter of difference of opinion, not concealment or furnishing inaccurate particulars of income. 6. Application of Explanation 1 to Section 271(1)(c): The appellant contended that Explanation 1 to Section 271(1)(c) is a deeming provision applicable only when an amount is added or disallowed as concealment of income. Since the case involved furnishing inaccurate particulars of income, the appellant argued that Explanation 1 was not applicable. The appellant relied on various judicial precedents, including ITAT orders and the Supreme Court decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that mere disallowance of a claim does not automatically lead to the imposition of a penalty. Conclusion: Upon careful consideration, it was noted that the penalty was levied on the disallowance of ?35,92,393/-, which was claimed as revenue expenditure. The Hon'ble Supreme Court's decision in CIT vs. Reliance Petro Products Pvt. Ltd. was found applicable, stating that mere disallowance of a claim does not justify the imposition of a penalty unless the claim is ex-facie bogus. The conduct of the assessee was not found to be contumacious, and the penalty under Section 271(1)(c) was deemed not leviable. The references to other judicial precedents by the A.O. were found irrelevant to the facts of this case. Consequently, the orders of the authorities below were set aside, and the penalty was directed to be deleted. The appeal by the assessee was allowed.
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