2016 (3) TMI 916 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance from prior period expenditure - CIT(A) deleted the penalty - Held that - There is no dispute on facts. It appears that the assessee received a salary credit. It would accordingly debit a net prior period expenditure. The Assessing Officer held that it ought to have added back gross prior period expenses instead of net amount. The CIT(A) holds that there is revenue implication as the same is only rearrangement exercise of expenses. We further find from case 119 forming assessee s profit and loss account for the year ending on 31- 03-1998 that it has already disclosed the impugned netting exercise. We reiterate that the instant case is that of furnishing of inaccurate particulars of income as held by the Assessing Officer (supra). We observe in these facts that once the assessee has disclosed all the true and correct particulars leading to mere re-computation of disallowance of prior period expenditure without any new evidence being discovered in the course of scrutiny, the same cannot be perceived as an instance of furnishing of inaccurate particulars of income. CIT(A) has rightly deleted the impugned penalty arising from disallowance from prior period expenditure. - Decided in favour of assessee Section 35D disallowance - Held that - It is to be seen that this amount has arisen because of giving consequential effect to appeals and revisions in assessee s own case in the preceding assessment years. The same relate to preliminary and preoperative expenditure written off. The initial claim was for ₹ 1,11,62,284/-. The Assessing Officer took clue from appeal orders and revisions for re-computing the same to be of ₹ 14,00,936/- after allowing expense of ₹ 97,61,348/-. We hold in these facts that the assessee s books raised the impugned claim in tune with that made in the earlier assessment years. We are of the view that such a course of action cannot be held to be an act of furnishing of inaccurate particulars of income.- Decided in favour of assessee Excess remuneration paid to assessee s Managing Director - Held that - The assessee had claimed total remuneration of ₹ 68,23,940/- pending approval from the Govt. of India. The relevant particulars pertaining to the relevant post facto approval aspect already forms the part of the paper book at page 130. The ld. authorized representative states in the course of argument that this approval only in assessment year 2001-02 for ₹ 53,17,000/- resulting in treatment of the balance amount of ₹ 15,06,940/- which was recovered and offered for taxation in the succeeding assessment years. The Revenue is unable to rebut this factual position. We conclude in this factual backdrop that the assessee has followed past practice by claiming its MD s remuneration subject to Govt s approval which cannot be taken an act of furnishing of inaccurate particulars of income u/s. 271(1)(c) of the Act. - Decided in favour of assessee

Summary

Issues involved:
Appeals challenging deletion of penalties under section 271(1)(c) for disallowances of prior period expenditure, section 35D deduction, and excess remuneration paid to Managing Director for assessment years 1998-99 to 2001-02.

Detailed Analysis:

1. Penalty on Disallowance of Prior Period Expenses:
The Assessing Officer disallowed prior period expenditure adjustment, section 35D deduction, and excess remuneration to the Managing Director. The penalty proceedings under section 271(1)(c) were initiated, alleging inaccurate particulars of income and concealment. The CIT(A) referred to the apex court decision in CIT vs. Reliance Petro-products, stating that mere rejection of a claim does not constitute inaccurate particulars. The CIT(A) analyzed the disallowance of prior period expenses and concluded that it was a rearrangement exercise without any new evidence, thus not amounting to inaccurate particulars. Referring to a co-ordinate bench decision, the penalty arising from this disallowance was deleted.

2. Penalty on Disallowance of Section 35D Deduction:
The disallowance of section 35D deduction was due to consequential effects of appeals and revisions from previous years. The Assessing Officer recomputed the deduction, leading to a reduced amount. The tribunal held that the claim was in line with past practices and not an act of furnishing inaccurate particulars, thus rejecting the penalty on this ground.

3. Penalty on Excess Remuneration to Managing Director:
Regarding the excess remuneration paid to the Managing Director, the assessee claimed remuneration pending government approval. The approval was granted in a subsequent year, leading to the recovery and taxation of the excess amount. The tribunal found that the claim was consistent with past practices and not misleading, thus rejecting the penalty on this ground as well.

The tribunal dismissed all four revenue appeals, emphasizing that the findings on the issues decided for the assessment year 1998-99 applied to the subsequent years as well. The penalties under section 271(1)(c) were deleted based on the analysis of each specific disallowance and the absence of intent to provide inaccurate particulars of income.