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2015 (4) TMI 596 - AT - Income TaxPenalty u/s 271 (1)(c) - Expenditure incurred on filing fee - ROC which was with respect to increase in authorized share capital of the assessee company disallowed - Held that - To claim that such expenditure is allowable, assessee is relying upon the commentary of Iyengar s Law of Income Tax 11th Edition, but a clear reading of the aforementioned commentary will reveal that no specific view has been formed by the Apex Court in the case of Brooke Bond Indian Ltd Vs. CIT (1997 (2) TMI 11 - SUPREME Court) regarding allowability of such claim that if there is increase in working funds then such expenditure could be allowed. However, in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT (1996 (12) TMI 6 - SUPREME Court), this issue has been considered and it has been observed that the fee paid to Registrar for expansion of capital base of the company was directly related to the capital expenditure incurred by company and although incidentally that would certainly help in business of company and may also help in profit making, it still retains the character of capital expenditure, since the expenditure was directly related to the expansion of capital base of the company. Thus, there was no doubt on the issue that even when there is increase in the capital for the business of the company then also the expenditure would be capital in nature and cannot be claimed as revenue expenditure. Therefore, clear-cut law has been laid down by Hon ble Apex Court that such expenditure cannot be claimed as revenue expenditure. Thus when prima facie, a wrong claim is made, which is not only against two decisions of Apex Court i.e. in the cases of Brooke Bond India Ltd. (supra) and Punjab State Industrial Corporation Ltd. (supra), but also against the decision of Hon ble Delhi High Court in the case of CIT Vs. Hindustan Insecticides (2001 (2) TMI 75 - DELHI High Court) then it will be a case of claiming expenditure, which is not permissible in law and assessee s explanation cannot be considered to be bona fide or substantiated. CIT(A) did not commit any error in sustaining the concealment penalty. - Decided against assessee.
Issues Involved:
1. Legality of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961. 2. Whether there was concealment of income or furnishing of inaccurate particulars by the assessee. 3. Whether the expenses incurred towards the increase in authorized share capital are allowable as revenue expenditure. Issue-wise Detailed Analysis: 1. Legality of the Penalty Order: The appeal challenges the penalty order dated 28th June 2010, passed by the Deputy Commissioner of Income Tax under Section 271(1)(c) of the Income Tax Act, 1961, which levied a penalty of Rs. 2,40,000. The assessee contends that both the penalty order and the appellate order dated 10th August 2011 confirming the penalty are "bad in law and on facts." The assessee argues that there was no concealment of income nor furnishing of inaccurate particulars, which could fall within the rigors of Section 271(1)(c). 2. Concealment of Income or Furnishing of Inaccurate Particulars: The assessee claims that the expenditure of Rs. 7,08,800 incurred on filing fees with the Registrar of Companies (ROC) for increasing the authorized share capital was for working capital requirements and not for creating assets. The assessee argues that this expenditure should not be considered as capital expenditure. The assessee supports this claim by referencing the balance sheets from 2006-07 to 2009-10, showing that the enhanced capital was used for working capital requirements. The assessee also refers to judicial precedents and commentary by Sampath Iyengar's Law of Income Tax, suggesting that such expenses could be considered revenue expenditure under certain conditions. 3. Allowability of Expenses as Revenue Expenditure: The assessee argues that the expenditure incurred for increasing the authorized share capital was necessary for meeting the working capital requirements, and hence should be considered as revenue expenditure. The assessee cites the decision of the Delhi Tribunal in ACIT vs. Fascel Ltd., which allowed similar expenses as revenue expenditure. However, this decision was later reversed by the Delhi High Court. The assessee contends that at the time of filing the return, there were two prevailing views on the matter, making the claim debatable and not subject to penalty. Tribunal's Analysis and Decision: The Tribunal considered the arguments and observed that the Supreme Court in Punjab State Industrial Development Corporation Ltd. vs. CIT and Brooke Bond India Ltd. vs. CIT had established that fees paid to the ROC for increasing the authorized share capital are capital expenditures. The Tribunal noted that the Delhi High Court in CIT vs. Hindustan Insecticides Ltd. had also upheld this view. The Tribunal found that the assessee's claim was prima facie wrong and against the established legal position. The Tribunal dismissed the assessee's reliance on the decision in ACIT vs. Fascel Ltd., noting that the Delhi Tribunal's decision was reversed by the Delhi High Court, and thus, there was no conflicting view at the time of filing the return. The Tribunal also rejected the applicability of the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., stating that the assessee's claim was not bona fide or substantiated, and amounted to furnishing inaccurate particulars and concealment of income. Conclusion: The Tribunal upheld the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, concluding that the assessee's claim was against the law laid down by the Supreme Court and the Delhi High Court. The appeal filed by the assessee was dismissed, and the penalty order was sustained. Result: The appeal of the assessee is dismissed. The decision was pronounced in the open court on 11th February 2015.
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