2014 (9) TMI 761 - HC - Income Tax

Deletion of penalty u/s 271(1)(c) Technical knowhow expenses disallowed u/s 35AB Expenses revenue or not u/s 37(1) Held that - The assessee in its books of account had considered technical knowhow expenditure as deferred revenue expenses as for the purpose of accounting, the expenditure in question was likely to benefit in future - But, in the return of income had claimed the technical knowhow license fees as revenue expenses - In the computation of income also, it had disclosed the accounting treatment given to the said item by way of a separate note - when the claim of expenses under the general provision was questioned, it changed such claim under the provision of Section 35AB and such change during the course of assessment proceedings is permissible under the law - so far as levy of penalty for concealment of the income u/s 271(1)(c) is concerned, the Tribunal has noted that in terms of provisions of Explanation 1 to Section 271(1)(c) of the Act, if an explanation comes forth from the assessee, or if any explanation given is found to be false, or is not able to sustain the explanation and is also not able to prove that the explanation is bona fide, the addition made tantamount to concealment of particular of income - the penalty proceedings are separate from those of the assessment proceedings and confirmation of additions may not be the sole ground for confirming the penalty, the Tribunal held that all the details were already before the AO and it would not be plausible to hold that the assessee had concealed any income the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Whether the Appellate Tribunal erred in deleting the penalty for disallowance of technical knowhow expenses under Section 35Ab of the Income Tax Act?
2. Whether the Appellate Tribunal failed to appreciate the incorrect claim of technical knowhow fees as revenue expenses under Section 37(1) and the subsequent correction by the assessee during assessment proceedings?

Analysis:

1. The assessee had claimed technical knowhow expenses under Section 35AB of the Income Tax Act, which was disallowed by the Assessing Officer, leading to penalty proceedings under Section 271(1)(c) of the Act. The CIT(A) upheld the penalty, stating that the assessee furnished inaccurate particulars of income. However, the Tribunal disagreed, ruling in favor of the assessee. The High Court noted that the assessee initially claimed the expenses as revenue under Section 37(1) but later corrected it under Section 35AB during assessment proceedings. The Tribunal held that this correction did not amount to concealment of income, as the details were already before the authorities. The High Court concurred with the Tribunal, stating that the incorrect claim did not constitute furnishing inaccurate particulars, and the penalty was rightly deleted. Therefore, the Tax Appeal was dismissed.

2. The Tribunal found that the assessee's correction of the technical knowhow expenses claim during assessment proceedings did not amount to concealment of income. The High Court agreed, emphasizing that the correction of an unsustainable claim under the law does not warrant penalty for furnishing inaccurate particulars. The High Court further highlighted that the assessee's initial incorrect claim, later rectified, did not indicate any deliberate attempt to conceal income. As there was no evidence of inaccurate particulars being furnished, the Tribunal's decision to delete the penalty was upheld. Consequently, the High Court dismissed the Tax Appeal, as no substantial question of law arose from the case.