2019 (3) TMI 728 - AT - Income Tax

Penalty u/s 271(1)(c) - Disclosure of relevant facts - 1/5th ROC expenditure allowable u/s 35D - notice not scored off the specific charge - HELD THAT - A proportional deduction has been given a statutory recognition. The preliminary expenses permissible for amortization contemplated by the statute are for expenditure in connection with preparation of feasibility report; preparation of project report; conducting Mark market survey etc; legal charges for drafting any agreement; and in case the assessee is a company then the charges for drafting the Memorandum and Articles of Association of the company; printing of the Memorandum and Articles of Association; fees for registering the company and the provisions of the companies act 1956 (now companies act 2013) and expenditure in connection with the issue for public subscription etc are also permissible for claiming amortization in terms of the statutory limit. Admittedly in the facts the present case all necessary details were made available by the assessee the mere fact that the addition made in the course of assessment proceedings in the peculiar facts of the present case was not challenged in appeal by itself is neither here nor there. Satisfied by the explanation filed after giving our due consideration to the material available on record and the statutory provisions relying upon the proposition of law as laid down by the Apex court in the case of Reliance Petro products private limited 2010 (3) TMI 80 - SUPREME COURT the impugned order is set aside and the penalty is directed to be quashed - Decided in favour of assessee.

Summary

Issues:

1. Correctness of penalty order under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:

Issue 1: Correctness of penalty order under section 271(1)(c) of the Income Tax Act, 1961

The appeal was filed by the assessee challenging the order dated 08/09/2015 of CIT(A)-IV, New Delhi for Assessment Year 2008-09. The main ground of appeal was against the penalty of ?2,16,516/- levied under section 271(1)(c) of the IT Act. The AR argued that the penalty was not valid as the Assessing Officer did not specify the charge invoked in the notice, citing the decision of the Karnataka High Court in ACIT vs. Manjunatha Cotton. The Senior DR contended that the penalty was correctly imposed as the assessee did not participate in the penalty proceedings and did not specifically challenge the levy based on the charge not being spelt out. The AR maintained that the penalty should be deleted, emphasizing that the claim of capital expenditure under Section 35D was permissible, and the assessee had disclosed all relevant details. The AR further argued that the disallowance of the expenditure did not automatically warrant penalty proceedings, citing various legal precedents to support the argument.

The Tribunal examined the provisions of Section 35D of the Income Tax Act, which allows for the deduction of certain preliminary expenses for Indian companies. It noted that the assessee had provided all necessary details related to the claim of ROC expenditure under Section 35D. The Tribunal observed that the mere fact that the addition made by the Assessing Officer was not challenged on appeal did not imply concealment of income. After considering the arguments and statutory provisions, the Tribunal referred to the decision in Reliance Petro Products Pvt. Ltd. and set aside the penalty, ruling in favor of the assessee. The Tribunal concluded that the penalty was not justified based on the explanations provided and the statutory provisions.

In conclusion, the Tribunal allowed the appeal of the assessee, holding that the penalty under section 271(1)(c) of the Income Tax Act for the Assessment Year 2008-09 was not warranted and directed the penalty to be quashed.