2023 (9) TMI 830 - AT - Income Tax

Penalty levied u/s 271(1)(c) - deduction u/s 10A - HELD THAT - Disallowance of claim made u/s 10A of the Act has been made on account of non-filing of mandatory Audit Report in Form 56F of the Act and also for claiming deduction u/s 10A before set-off of brought forward losses/unabsorbed depreciation. It is a case of rejection of a claim on technical reasons and also on account of difference of opinion between the assessee and the AO on the methodology of computation of deduction. None of the particulars given in the financial statements were found to be inaccurate. Hence, these facts would not lead to a case of furnishing of inaccurate particulars of income. This deduction has not been claimed by the assessee as an expenditure in the Profit Loss Account, but has been claimed only in computation of total income. Since this deduction is allowed as an incentive to promote exports, in the case of ACIT vs BSL Software Ltd., 2012 (4) TMI 360 - ITAT DELHI has held that where claim for deduction was made u/s 10A on the basis of certificate of Accountant which was bona fide and the required facts relating thereto were furnished, then assessee could not be held to be liable for penalty. Accordingly, we are of the view that the AO was not justified in levying penalty u/s 271(1)(c) of the Act on the disallowance of claim of deduction u/s 10A of the Act. Disallowance made u/s 40(a)(ia) - Upon examination of the various expenses claimed by the assessee, the Assessing Officer noticed that assessee is liable to deduct tax at source on the payments made towards Audit fee, Professional fee, Consultancy charges and Software development charges aggregating - Accordingly, the Assessing Officer disallowed a sum u/s 40(a)(ia) for non-deduction of tax at source. AO also levied penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. This is also a case where the disallowance is required to be made in view of legal fiction provided in Section 40(a)(ia) of the Act, i.e. when the assessee has failed to deduct tax at source on certain payment, the relevant expenditure is liable to be disallowed. Hence, the statutory disallowance made as per the legal fiction inserted in the Act would not result in furnishing of inaccurate particulars of income. In this regard from the decision rendered by co-ordinate bench of the Tribunal in the case of Tanushree Basu 2013 (5) TMI 881 - ITAT MUMBAI Accordingly, we hold that the AO was not justified in levying penalty on this disallowance. Penalty levied relates to disallowance of expenditure claimed by assessee holding the same as capital expenditure - AO noticed that the assessee has incurred for increasing its Share Capital and claimed same as Revenue expenditure . AO treated the same as Capital expenditure by placing reliance on the judgment rendered in the case of Brooke Bond India Ltd. 1997 (2) TMI 11 - SUPREME COURT and levied penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. We heard the parties on this issue and perused the record. In our view, it is a case where assessee has made a claim and same has been disallowed as, according to the AO the said expenditure is capital in nature. First of all, the decision taken by the AO is a debatable one and hence no penalty could be levied on such a debatable issue. In the case of CIT vs Reliance Petroproducts (P.) Ltd., 2010 (3) TMI 80 - SUPREME COURT has held that mere making of a claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars of income. Accordingly, we are of the view that the Assessing Officer was not justified in levying penalty on this disallowance also. We are of the view that penalty u/s 271(1)(c) of the Act cannot be levied on all the three disallowances made by the AO. Accordingly, we set-aside the order passed by the CIT(A) and direct the AO to delete the penalty levied u/s 271(1)(c) of the Act for the year under consideration.

Summary

Issues involved:
The judgment involves challenging a penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 by the Assessing Officer for three disallowances made during the assessment year 2011-12.

Disallowance of claim of deduction u/s 10A:
The first disallowance was related to the rejection of a deduction claimed under Section 10A of the Act amounting to Rs. 53,17,433. The penalty was based on technical reasons and a difference of opinion on the methodology of computation. The Tribunal held that this disallowance did not amount to furnishing inaccurate particulars of income and referred to a High Court case to support its decision.

Disallowance u/s 40(a)(ia):
The second disallowance was made under Section 40(a)(ia) of the Act amounting to Rs. 53,90,600 for non-deduction of tax at source. The Tribunal ruled that this statutory disallowance did not result in inaccurate particulars of income and cited a precedent to support its decision.

Disallowance of capital expenditure u/s 37(1):
The last addition on which penalty was levied related to the disallowance of expenditure of Rs. 5,84,698 claimed by the assessee as 'capital expenditure'. The Assessing Officer treated it as 'Capital expenditure' and levied a penalty under Section 271(1)(c) of the Act. The Tribunal held that the decision was debatable, and penalty could not be levied on such a debatable issue, citing a Supreme Court case to support its decision.

The Tribunal set aside the order passed by the Ld. CIT(A) and directed the Assessing Officer to delete the penalty levied under Section 271(1)(c) of the Act for the year under consideration. The Tribunal did not find it necessary to adjudicate the legal grounds raised by the assessee, as the penalty was deleted on merits.