2020 (11) TMI 449 - AT - Income Tax

Penalty u/s 271(1)(c) - characterisation of expenses - treating the purchase of software as capital expenditure by the assessee whereas as per revenue it is a revenue expenditure - HELD THAT - We notice that assessee has purchased software at the cost of ₹ 39 lakhs and claimed the same as revenue expenditure. At the time of assessment proceedings, assessing officer brought to the knowledge of the assessee that it is a depreciable asset and as per income tax rules assessee can claim only depreciation @ 60%. The assessee also confirmed that it has claimed the above expenditure inadvertently. As relying on M/S TORQUE PHARMACEUTICALS (P) LTD., 2015 (5) TMI 1146 - ITAT CHANDIGARH the assessee made a bonafide claim of deduction of the expenditure even though it was not acceptable to the revenue, would not lead to inference that assessee has concealed the particulars of income or filed inaccurate particulars of income. Nothing is brought on record if claim of assessee was incorrect in law or was malafide. Penalty deleted - Decided in favour of assessee.

Summary

Issues Involved:
- Penalty levied under section 271(1)(c) for treating purchase of software as revenue expenditure
- Appeal against penalty order by both assessee and revenue
- Monetary limit for filing appeals before ITAT
- Applicability of Circular No.17 of 2019 by CBDT

Detailed Analysis:

Issue 1: Penalty for treating purchase of software as revenue expenditure
The assessing officer observed that the assessee purchased software as a revenue expenditure, which was later deemed eligible for depreciation as per income tax rules. The penalty was initiated as the assessee inadvertently claimed the expenditure as revenue. The assessing officer confirmed and levied the penalty, which was sustained by Ld CIT(A). The assessee argued that the claim was a debatable issue and that there was no concealment of information since it was disclosed in the tax audit report. The AR relied on a case to support the argument. The DR contended that the assessee should have clearly disclosed relevant information and supported Ld CIT(A)'s findings.

Issue 2: Appeal against penalty order
The AR highlighted that the penalty order was based on the assessee's inadvertent claim of software purchase as revenue expenditure. The AR argued that the claim was disclosed in good faith and that no concealment occurred. The AR further contended that the penalty could not be imposed solely based on a difference in treatment by the assessing officer. The ITAT referred to a similar case and decided to delete the penalty levied on the assessee, following the precedent.

Issue 3: Monetary limit for filing appeals
The ITAT noted that the total addition in the revenue's appeal was less than the revised monetary limit for filing appeals before ITAT as per Circular No.17 of 2019. As the addition fell below the new limit, the ITAT was inclined to dismiss the revenue's appeal based on the revised guidelines.

Conclusion:
The ITAT allowed the appeal filed by the assessee, deleting the penalty levied for treating the purchase of software as a revenue expenditure. The ITAT dismissed the revenue's appeal due to the total addition falling below the revised monetary limit for filing appeals before ITAT. The judgment emphasized the importance of disclosing information clearly and in good faith, considering the nature of the transaction and relevant legal provisions.