2022 (4) TMI 152 - AT - Income Tax

Levy of penalty under section 271(1)(c) - assessee's inadvertent claim of expenditure under 'Corporate Social Responsibility' - HELD THAT - Undisputedly, the assessee had claimed expenditure on CSR under section 37(1) of the Act in the original computation of total income. During assessment proceedings, the assessee voluntarily filed revised computation disallowing the said expenditure. The contention of the assessee is that the expenditure was claimed inadvertently. Explanation 2 to section 37 was introduced by the Finance (No. 2) Act, 2014 with effect from 01/04/2015. The newly inserted Explanation disallows the expenditure incurred on the activities relating to CSR referred to in section 135 of the Companies Act, 2013. The assessment year under appeal being the first year wherein this amendment had taken effect, the assessee ostensibly made a claim of CSR expenditure due to oversight. After having examined the facts and chronology of events, prima facie it appears to be a bonafide mistake. It is relevant to mention here that the assessee had made disclosure about the claim made in the computation of income including the expenditure claimed on CSR. Thus, the assessee has not suppressed the facts. The assessee in computation of income made a claim which was inadmissible and during assessment proceedings the assessee rectified the mistake by filing revised computation. Hon'ble Supreme Court in the case of CIT vs Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT has held that merely because the assessee had claimed expenditure which was not accepted or was not acceptable to revenue, that by itself, would not attract penalty under section 271(1)(c) Hon'ble Apex Court in the case of Price Waterhouse Coopers Pvt. Ltd. 2012 (9) TMI 775 - SUPREME COURT has held that no penalty under section 271(1)(c) of the Act could be imposed where there was bona fide and inadvertent error. Thus this is not a fit case for levy of penalty under section 271(1) - Appeal of assessee allowed.

Summary

Issues:
1. Condonation of delay in filing appeal.
2. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for inadvertent claim of expenditure under Corporate Social Responsibility (CSR).

Issue 1: Condonation of Delay in Filing Appeal

The appeal was filed 86 days beyond the due date, citing closure due to the Covid-19 pandemic. The Appellate Tribunal noted that the delay was beyond the assessee's control and was filed within the extended period granted by the Taxation & Other Laws Ordinance, 2020. Consequently, the appeal was deemed to be within the extended limitation period, and no delay was found in filing the appeal.

Issue 2: Levy of Penalty under Section 271(1)(c) for CSR Expenditure

The assessing officer had imposed a penalty under section 271(1)(c) for the inadvertent claim of expenditure under CSR. The assessee voluntarily revised the computation of income during assessment proceedings, disallowing the CSR expenditure. It was argued that the mistake was bona fide, as it was the first year for disallowing CSR expenditure, and the error was rectified promptly. The assessing officer did not inquire about CSR expenditure, and the mistake was corrected by the assessee without carrying forward losses.

The Appellate Tribunal analyzed the case laws cited by both parties and observed that the mistake in claiming CSR expenditure appeared to be a genuine oversight, considering the introduction of Explanation 2 to section 37 in the Finance Act, 2014. The Tribunal noted that the assessee disclosed the error and rectified it promptly during assessment proceedings. Referring to the Supreme Court's decision in CIT vs Reliance Petroproducts Pvt. Ltd., it was emphasized that a mere unsustainable claim does not attract penalty under section 271(1)(c) if details provided in the return are not found to be inaccurate or false.

Based on the facts and legal precedents, the Tribunal concluded that this was not a suitable case for imposing a penalty under section 271(1)(c). Therefore, the assessing officer was directed to delete the penalty, and the appeal of the assessee was allowed.

In conclusion, the Appellate Tribunal upheld the appeal, setting aside the penalty imposed under section 271(1)(c) for the inadvertent claim of expenditure under Corporate Social Responsibility, emphasizing the bona fide nature of the mistake and the timely rectification by the assessee during assessment proceedings.