2021 (10) TMI 66 - AT - Income Tax

Penalty u/s 271(1)(c) - whether the expenses are capital or revenue in nature? - debatable issue - addition being 50% of the expenditure debited in the profit loss account under different heads and for making addition being the alleged difference between the income shown in 26AS and income shown in the profit loss account - whether the assessee has concealed particulars of income or has furnished inaccurate particulars of income during assessment proceedings? - HELD THAT - Mere disallowance of expenditure claimed as per books of account, penalty u/s 271(1)(c) of the Act cannot be levied unless any particulars in the return of income has been found to be false or incorrect. Making ad hoc disallowance by the AO to the extent of 50% of the expenditure claimed by the assessee on account of salary wages, communication expenses, marketing expenses, professional legal expenses and tour travel expenses by holding the same to be capital in nature itself shows that the AO himself was not satisfied as to in which of the case assessee furnished inaccurate particulars because everything decided by the AO as well as ld. CIT (A) on ad hoc basis on the basis of their guesswork. Even otherwise, we fail to comprehend as to what enduring benefit has been created in favour of the assessee by incurring expenses on salary wages, communication expenses, marketing expenses etc. because these are expenses which are necessary to carry out day-to-day business. Moreover, it is a debatable issue if the expenditures are capital or revenue in nature as has been held by Hon ble Punjab Haryana High Court in case of CIT vs. Gurdaspur Cooperative Sugar Mills Ltd 2013 (3) TMI 175 - PUNJAB AND HARYANA HIGH COURT . Also as perused the documents brought on record by the assessee hich go to shows that how much revenue was booked by the assessee and how much was the reimbursement of the expenses leading to no difference in the income shown in the 26AS and profit loss account. Ld. DR for the Revenue has failed to point out any difference in the income shown in Form 26AS and profit loss account as explained by the assessee. So, on this score also, the Revenue has failed to prove if inaccurate particulars have been furnished by the assessee. AO has failed to make out the case of furnishing of inaccurate particulars of income by the assessee so as to levy the penalty. Consequently, question framed is decided in favour of the assessee and against the Revenue.

Summary

Issues:
Penalty under section 271(1)(c) for furnishing inaccurate particulars of income.

Detailed Analysis:
The appellant sought to set aside the penalty order based on various grounds, including the failure to observe natural justice, arbitrary conclusions, and lack of opportunity to be heard. The Assessing Officer (AO) initiated penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961, due to the disallowance of expenditure and an alleged difference in income figures. The appellant challenged the penalty, arguing that no inaccurate particulars were furnished, and relied on legal precedents to support their case. The dispute revolved around whether the penalty was justified for concealing income or providing inaccurate particulars.

The Tribunal analyzed the facts and arguments presented by both parties. It noted that the penalty was imposed based on ad hoc disallowances and additions made by the AO. The Tribunal referred to legal principles established by the Hon'ble Supreme Court in cases like Reliance Petro Products Pvt. Ltd., emphasizing that mere incorrect claims do not amount to furnishing inaccurate particulars. The Tribunal highlighted that the AO's decision to treat certain expenditures as capital in nature was not conclusive evidence of inaccurate particulars being furnished.

The Tribunal further discussed the debatable nature of distinguishing between capital and revenue expenditures, citing relevant case law. It emphasized that the enduring benefit test should be applied based on the specific circumstances of each case. The Tribunal found it questionable whether the expenses in question created enduring benefits for the appellant. Additionally, the Tribunal considered the difference in income figures and the explanation provided by the appellant regarding TDS deductions by vendors.

Ultimately, the Tribunal concluded that the AO failed to establish that inaccurate particulars of income were furnished by the appellant. It ruled in favor of the appellant, stating that the penalty was unjustified. The penalty imposed by the AO and upheld by the Commissioner of Income-tax (Appeals) was deleted, and the appeal filed by the appellant was allowed. The judgment was pronounced on September 30, 2021, in open court.