2014 (7) TMI 167 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Intentional claim of expenses though not allowable Held that - The first basis on which the CIT(A) has deleted the penalty and has been upheld by the Tribunal cannot be justified the material fact has not been rebutted by the revenue that in support of the claimed expenditure there was full disclosure of the expenditure and about its treatment for accounting purposes was made known to the AO by the assesee - The expenditure was related to cost of website maintenance - only there is a definition of short term capital asset in clause (42A) of section 2 which provides that short term capital asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of transfer - there is nothing on record to suggest that the explanation furnished by the assesee against the claimed expenditure was not bonafide - there was no reason to arrive at the conclusion by the AO that there was concealment of particulars of income or furnishing inaccurate particulars thereof in relation to the claimed expenditure on the part of the assessee to attract penal provision u/s 271(1)(c) of the Act - CIT(A) has rightly deleted the penalty. If the assesee is able to furnish bonafide reason for the claim or the claim made was a debatable issue in view of the provisions of the law in that case penalty u/s 271 (1)(c) is not leviable - Such precaution is being taken within the provision of the law keeping in mind that the action u/s 271(1)(c) of the Act is penal in nature - When an assesee establishes and shows that he had acted bonafidely and all facts and material were disclosed by him, penalty should not be imposed as per clause B to Explanation 1to section 271 (1)(c) of the Act - mere submission of a claim which is incorrect in law would not amount to giving inaccurate particulars of income, hence penalty for concealment cannot be levied on the same. There is no doubt on the genuineness of the claimed expenditure, the only question was the treatment given by the assesee to those expenditure which was a debatable issue and further that there was no allegation that the assesee had not disclosed full facts relating to the claimed expenditure as it was disallowed by the AO only on the basis of those disclosures the order fo the CIT(A) is upheld Decided against Revenue.

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act.
2. Whether the assessee deliberately claimed non-allowable expenses.
3. Full disclosure of expenditure by the assessee.
4. Applicability of Explanation 4 to Section 271(1)(c) post-amendment.
5. Whether the penalty is justified when the assessed income is a loss.

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The revenue questioned the deletion of a penalty amounting to Rs. 52,85,990/- imposed by the AO under Section 271(1)(c). The penalty was initially imposed due to the assessee's claim of non-allowable expenses. The CIT(A) deleted the penalty, leading to the present appeal by the revenue.

2. Deliberate Claim of Non-Allowable Expenses:
The revenue argued that the assessee deliberately claimed expenses that were not allowable, as evidenced by the notes to the account. The assessee had claimed an expenditure of Rs. 4,15,14,394/- for website maintenance, out of which Rs. 1,50,21,941/- was debited in the profit and loss account, and the balance was capitalized. The AO added Rs. 1,31,44,111/- to the income after allowing depreciation. Additionally, a payment discrepancy of Rs. 2,21,225/- to FCB ULKA Advertising Ltd. was added to the income as unexplained expenditure.

3. Full Disclosure of Expenditure:
The CIT(A) deleted the penalty on the grounds that there was full disclosure of the expenditure and its treatment for accounting purposes. The assessee's explanation that the website maintenance cost was deferred revenue expenditure and not a capital asset was accepted. The AO's addition was based on disclosed information, indicating no concealment or furnishing of inaccurate particulars by the assessee.

4. Applicability of Explanation 4 to Section 271(1)(c):
The Delhi High Court remanded the case back to the Tribunal, noting that the ITAT had previously deleted penalties based on a misunderstanding of Explanation 4 to Section 271(1)(c). The Court clarified that penalties could be imposed even when the assessed income is a loss, as per the amendments effective from 1976 to 2003.

5. Justification of Penalty when Assessed Income is a Loss:
The Tribunal examined whether the reasons for the claimed expenditure were bona fide. It was noted that the expenditure was genuine and fully disclosed, and the disallowance was based on a debatable issue. The Tribunal found that the CIT(A) rightly deleted the penalty as the assessee had acted in good faith and the claim was not patently false.

Conclusion:
The Tribunal upheld the CIT(A)'s order deleting the penalty under Section 271(1)(c), finding no concealment or furnishing of inaccurate particulars by the assessee. The appeal by the revenue was dismissed, affirming that the penalty was not justified given the full disclosure and bona fide nature of the claimed expenditure. The decision considered various precedents and clarified that penalties under Section 271(1)(c) require a clear indication of concealment or inaccurate particulars, which was not evident in this case.

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