2016 (7) TMI 29 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of expenditure spent on laying of cables for 950 KVA transformer as revenue expenditure - Held that - As at the time when the expenditure of ₹ 959886/- was booked in the books as revenue expenditure the assessee was having certain belief which was duly supported with the agreement with DGVCL evidencing that the ownership and liberty regarding the use of transformer for supply of electricity to other consumers will rest upon the DGVCL only and, therefore, cost of laying of cables attached to the Transformer was treated as revenue expenditure. Certainly in such a situation when both the possible views i.e. revenue or capital expenditure are going side by side and there remains a thin line to differentiate the same. Also dispute is not in regard to the quantum of expenditure but it is with regard to nature i.e. capital/revenue. Even if ld. Assessing Officer has treated the amount of ₹ 9,59,886/- as capital expenditure, certainly assessee will be entitled to claim depreciation but the crux is, it is allowable expenditure. Such situation certainly does not call for a penalty u/s 271(1)(c) of the Act. So, assessee cannot be held for furnishing inaccurate particulars. - Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalty on disallowance of ?9,59,886/- claimed as revenue expenditure.
2. Levy of penalty on disallowance of ?93,552/- on account of legal and professional charges.

Issue-wise Detailed Analysis:

1. Levy of penalty on disallowance of ?9,59,886/- claimed as revenue expenditure:

The assessee claimed ?9,59,886/- spent on laying cables for a 950 KVA transformer as revenue expenditure. The Assessing Officer (A.O.) treated this expenditure as capital in nature and imposed a penalty under section 271(1)(c) of the IT Act, 1961 for furnishing inaccurate particulars of income. The CIT(A) upheld the A.O.'s decision, stating that the expenditure pertained to the period before the commencement of commercial production and should have been capitalized. The CIT(A) noted that the appellant had no bona fide reason or reasonable cause for not capitalizing the expenditure and found the claim of a bona fide mistake without merit. The appellant's reliance on certain judgments was deemed inapplicable as there was no dispute about the nature of the expenditure being preoperative.

The Tribunal, however, observed that the assessee had a reasonable belief, supported by an agreement with the Dakshin Gujarat Vij Company Ltd. (DGVCL), that the ownership and liberty regarding the use of the transformer rested with DGVCL, thus treating the expenditure as revenue. The Tribunal noted that the issue was not about the quantum but the nature of the expenditure and that both views (capital and revenue) were plausible. It emphasized that the assessee's belief was bona fide and that the expenditure was allowable, either as a capital expenditure with depreciation or as a revenue expenditure. The Tribunal found that the case was covered by the Supreme Court's decision in CIT vs. Reliance Petro Products Pvt. Ltd., where it was held that making an incorrect claim does not amount to furnishing inaccurate particulars if the details are not found to be incorrect or false. Consequently, the Tribunal set aside the lower authorities' orders and allowed the appeal, ruling that the penalty under section 271(1)(c) was not justified.

2. Levy of penalty on disallowance of ?93,552/- on account of legal and professional charges:

The A.O. imposed a penalty for the disallowance of ?93,552/- on legal and professional charges due to the non-furnishing of bills. The CIT(A) deleted the penalty, noting that the genuineness of the expenses was not disproved, the payments were made by account payee cheques, and TDS was deducted. The A.O. did not provide evidence that the expenditure was false, and the CIT(A) concluded that the inability to furnish bills did not constitute concealment of income. The Tribunal upheld this decision, agreeing that the penalty was not warranted as the expenditure was genuine and not proved to be bogus.

Conclusion:

The Tribunal allowed the appeal of the assessee, ruling that the penalty under section 271(1)(c) was not applicable for the disallowance of ?9,59,886/- claimed as revenue expenditure, as the claim was bona fide and supported by plausible reasoning. The penalty on the disallowance of ?93,552/- was also deleted, as the genuineness of the expenditure was not disproved. The Tribunal emphasized that making an incorrect claim does not amount to furnishing inaccurate particulars if the claim is bona fide and supported by evidence.