2009 (9) TMI 84 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of penalty imposed u/s 271(1)(c) for furnishing inaccurate particulars of income.
2. Determination of whether the expenditure claimed by the assessee was capital or revenue in nature.
3. Applicability of Explanation 1 to s. 271(1)(c) regarding deemed concealment of income.

Summary:

Issue 1: Deletion of Penalty Imposed u/s 271(1)(c) for Furnishing Inaccurate Particulars of Income

The Revenue appealed against the CIT(A)'s order deleting a penalty of Rs. 3,84,757 imposed u/s 271(1)(c) for the assessee's default in furnishing inaccurate particulars of income. The AO had completed the assessment u/s 143(3) for AY 2003-04, determining a loss of Rs. 9,09,712 against the returned loss of Rs. 19,56,670. The AO disallowed Rs. 9,80,500 towards filing fee paid to RoC and Rs. 66,458 for stamp duty, treating them as capital expenditure based on the Supreme Court's decision in Brooke Bond India Ltd. vs. CIT. The AO initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income, which the assessee did not contest. The AO imposed a penalty of Rs. 3,84,757, reasoning that the assessee's claim constituted conscious concealment.

Issue 2: Determination of Whether the Expenditure Claimed by the Assessee was Capital or Revenue in Nature

The CIT(A) deleted the penalty, observing that the expenses were debited to the P&L account and there was no suppression of facts. The CIT(A) noted that the auditors did not opine on the disallowance of these expenses in the tax audit report. The CIT(A) held that mere rejection of the assessee's claim was insufficient to prove concealment. The CIT(A) concluded that the assessee's explanation was bona fide and all material facts were disclosed, thus exonerating the assessee from penalty under Explanation 1 to s. 271(1)(c).

Issue 3: Applicability of Explanation 1 to s. 271(1)(c) Regarding Deemed Concealment of Income

The Tribunal noted that the assessee, a private limited company, was assisted by chartered accountants/advocates. The Tribunal emphasized that the Supreme Court's decisions in Brooke Bond India Ltd. and Punjab State Industrial Development Corporation Ltd. clearly held that such expenditures were capital in nature. The Tribunal highlighted that the possibility of filing returns with incorrect particulars, hoping they might not be scrutinized, cannot be ruled out. The Tribunal referred to the Delhi High Court's decision in CIT vs. Escorts Finance Ltd., which held that penalty u/s 271(1)(c) was leviable for ex facie bogus claims, even if there was no concealment of income or furnishing of inaccurate particulars.

The Tribunal concluded that the assessee's claim was ex facie bogus and not bona fide, thus attracting Explanation 1 to s. 271(1)(c). The Tribunal set aside the CIT(A)'s order and upheld the AO's penalty of Rs. 3,84,757, allowing the Revenue's appeal.