2014 (1) TMI 489 - AT - Income Tax

Penalty u/s 271(1)(c) Renovation expenses Capital or Revenue in nature - Held that - Following Reliance Petro Products 2010 (3) TMI 80 - SUPREME COURT - A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee - Such a claim made in the return cannot amount to furnishing inaccurate particulars - The assessee s bona fide belief about treating the expenditure as allowable revenue expenditure cannot be held unreasonable or without any consideration Decided against Revenue.

Summary

Issues:
Revenue's appeal challenging the deletion of penalty under section 271(1)(c) of the Income Tax Act for A.Y. 2006-07.

Analysis:
The case involved a dispute over the treatment of an expenditure incurred on refurbishing, repairs, and renovation of premises by an assessee company engaged in the hospitality business. The assessing officer treated the expenditure as capital in nature, leading to penalty proceedings under section 271(1)(c) of the Income Tax Act. The ITAT upheld the assessing officer's decision, resulting in the imposition of a penalty. However, the CIT(A) deleted the penalty based on the argument that the expenditure was disclosed in the Profit and Loss Account, and there was a difference of opinion regarding the nature of the expenditure. The CIT(A) referred to a judgment of the Delhi High Court in a similar case to support the decision.

The Revenue contended that the penalty was rightly imposed as the assessee had claimed capital expenditure as revenue expenditure to reduce tax liability. The Revenue argued that the CIT(A) did not provide independent reasoning for deleting the penalty and merely relied on the High Court's judgment. The Revenue sought restoration of the penalty imposed by the assessing officer.

The assessee, on the other hand, argued that the expenditure was revenue in nature as it was incurred in the course of managing a bar and restaurant under a management agreement. The assessee relied on the Supreme Court's judgment in a similar case to support the claim that the expenditure was allowable as revenue. The assessee also emphasized that all details were disclosed in the return of income, and the difference of opinion between the assessee and the assessing officer did not warrant a penalty under section 271(1)(c).

The ITAT held that the imposition of a penalty under section 271(1)(c) cannot be automatic and must be based on independent considerations. The ITAT considered the ongoing debate between revenue and capital expenditure and the thin line of distinction between the two. In this case, the ITAT found that the assessee had a bona fide belief about the allowability of the expenditure as revenue, supported by the disclosure of all details in the return of income. Therefore, the ITAT upheld the CIT(A)'s decision to delete the penalty, dismissing the Revenue's appeal.