2014 (2) TMI 1029 - AT - Income Tax

Penalty u/s. 271(1)(c) of the Act - Disallowance of technical know-how expenditure U/s. 35AB of the Act Held that - A case for levy of penalty for concealment of income has to be evaluated in terms of provisions of Explanation. 1 to Section. 271(1)(c) - Penalty proceedings are different from assessment proceedings and the findings given in the assessment though it may constitute good evidence but same is not conclusive in the penalty proceedings - merely because additions have been confirmed in appeal it cannot be the sole ground for coming to the conclusion that the assessee had concealed any income - in the absence of complete and convincing corroborative evidence, the Revenue may justify addition, but in the matter of penalty proceedings, the onus lies heavily on the Revenue to prove that the assessee had concealed its income or has filed inaccurate particulars of its income Relying upon Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT thus, no penalty is leviable u/s 271(1)(c) Decided in favour of Assessee.

Summary

Issues:
Appeal against CIT(A) order for A.Y. 1998-99; Disallowance of technical know-how expenditure u/s. 35AB; Penalty levied u/s. 271(1)(c) of Rs. 14,21,820.

Analysis:
The appeal was filed against the CIT(A) order for the assessment year 1998-99. The Assessee, engaged in manufacturing, filed its return declaring total income of Rs. 24,08,800. The assessment under section 143(3) determined total income at Rs. 63,88,440 after disallowing technical know-how expenditure u/s. 35AB of Rs. 40,62,344. The CIT(A) dismissed the appeal, leading to penalty imposition by the A.O. of Rs. 14,21,820. The main ground of appeal was the confirmation of the penalty levied by the A.O. u/s. 271(1)(c) of Rs. 14,21,820.

The Assessee argued that the technical know-how expenditure was treated as deferred revenue expenses in the accounts but claimed as revenue expenditure. The A.O. disallowed the deduction under section 35AB, allowing only 1/6th of the amount spent. The Assessee contended that it did not furnish inaccurate particulars and disclosed the treatment of know-how fees in the return. Various legal references were made to support the claim of allowability as revenue expenditure.

The Revenue argued that the Assessee should have been aware of Section 35AB provisions and claimed excess deduction, furnishing inaccurate particulars. The A.O. and CIT(A) supported the disallowance. The Tribunal noted the debatable nature of the issue due to conflicting decisions. The Assessee's submissions were found to be genuine and not proven false or not bonafide by the Revenue.

The Tribunal referred to the legal position that penalty proceedings are distinct from assessment proceedings. Merely because additions were confirmed on appeal does not imply concealment of income. The onus is on the Revenue to prove concealment or inaccurate particulars. Citing the Reliance Petroproducts case, the Tribunal held that incorrect claims do not amount to furnishing inaccurate particulars. Consequently, no penalty was found leviable under section 271(1)(c) and was directed to be deleted. The appeal of the Assessee was allowed, and the order was pronounced in open court on 21-02-2014.