2015 (10) TMI 2055 - HC - Income Tax

Penalty u/s 271(1)(c) - dis-allowance under Section 94(7) - purchase of software and treatment of revenue expenditure as capital in nature - incidental expenditure, which was found to be not supported by proof - interest on income tax as assessee has duly debited the amount to its profit and loss account, but it did not add back - Held that - First one of them falling under Section 94(7) is more or less an error of computation. The second one relates to treatment of software expenditure as capital in nature instead of revenue as claimed. We deem it appropriate to observe that this is a highly debatable issue of perennial nature. Therefore, the assessee cannot be held to have concealed and furnished inaccurate particulars of income. The third instance of incidental expenditure is a case of 100% dis-allowance instead of that @ 20% already made. This is also a divergence of opinion and does not attract penalty. The fourth dis-allowance admittedly is of interest on income tax. The assessee has duly debited this very amount to its profit and loss account but did not add back. We quote case law of Price Water Coopers P. Ltd. Vs. C.I.T. 2012 (9) TMI 775 - SUPREME COURT in identical circumstances and hold that this cannot be held to be an instance of concealment and furnishing of inaccurate particulars of income inviting penalty under Section 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act.

Analysis:
The judgment delivered by the High Court of Madras pertains to an appeal by the Revenue challenging the Tribunal's decision to delete the penalty under Section 271(1)(c) of the Income Tax Act. The Tribunal had raised substantial questions of law regarding the deletion of the penalty. The issues in question involved whether the Tribunal was correct in deleting the penalty and if the Tribunal's finding was flawed in considering it not a case of concealment or furnishing inaccurate particulars. The Tribunal had provided detailed reasons for deleting the penalty, citing errors in computation, debatable nature of certain claims, and lack of deliberate intention to conceal income.

Upon hearing the arguments presented by the Department's Standing Counsel, the High Court noted that the Assessing Officer had found discrepancies in four items claimed by the assessee, leading to the imposition of penalties. These items included dis-allowance under Section 94(7), treatment of software expenditure as capital instead of revenue, unsupported incidental expenditure, and interest on income tax. While the Commissioner (Appeals) upheld the penalties, the Tribunal disagreed, emphasizing that the issues were debatable and did not amount to deliberate concealment of income.

The High Court acknowledged the Revenue's argument that proving inaccurate particulars of income without deliberate intention was sufficient to attract penalties under Section 271(1)(c). However, it emphasized that the satisfaction required for imposing penalties under the Act needed to meet specific criteria outlined in the clauses. The Court highlighted that the Tribunal had provided cogent reasons for deleting the penalties, focusing on the objective satisfaction required for penalty imposition.

Ultimately, the High Court upheld the Tribunal's decision to delete the penalties, citing the Tribunal's exercise of discretion in favor of the assessee based on detailed reasoning provided for each disputed item. The Court concluded that the Tribunal's decision was well-founded, and it declined to interfere, dismissing the appeal brought by the Revenue.

In summary, the judgment underscores the importance of objective satisfaction and detailed reasoning in penalty imposition under Section 271(1)(c) of the Income Tax Act. The Court's analysis focused on the Tribunal's justification for deleting the penalties, highlighting the debatable nature of the issues and the absence of deliberate concealment of income.