JAIPUR METRO RAIL CORPORATION LTD.,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR

Before us, the ld. A/R of the assessee has submitted that the said advertisement expenditure was incurred mainly for inauguration of Metro Rail and other administrative requirements and the same were revenue expenditure accounted for in the Profit & Loss account and, therefore, claimed as part of the total expenditure. He has further submitted that the correctness of the expenditure was examined by the AO and no discrepancy in the amount of the expenditure claimed and details of expenditure was found by the AO. The entire expenditure was duly evidenced and accounted for and was audited by the statutory auditor duly appointed by Comptroller & Auditor General of India (CAG). He has further contended that there were no qualifying comments from the auditor appointed by the CAG regarding the treatment of the advertisement expenditure in the books of account as per their report dated 25th September, 2014. The ld. A/R has further contended that the assessee has disclosed complete particulars of income which were duly audited by the statutory auditor as well as the tax auditor under section 44AB of the IT Act. Therefore, it is not a case of furnishing inaccurate particulars of income or concealment of particulars of income, but this was a strong and bonafide belief of the assessee that the expenditure on inauguration of project cannot be treated as capital expenditure but it is a revenue expenditure. Further, the assessee has incurred a heavy operating loss and, therefore, there was no reason for making any impermissible claim of expenditure, but the expenditure was booked in the Profit & Loss account strictly as per the accounting standard which was also found to be as

On the other hand, the ld. D/R has relied upon the orders of the authorities below and submitted that the assessee has claimed the advertisement expenditure despite the fact that the assessee had not commenced its business or Project during the year under consideration, therefore, the said expenditure is not an allowable claim but was certainly required to be capitalized. Therefore, it is a case of furnishing inaccurate particulars of income when the assessee has knowingly made an impermissible claim prior to commencement of the business.

We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee in the revised return of income declared a loss of Rs. 13,08,21,562/- after claiming inter alia advertisement expenditure of Rs. 7,93,85,651/-. The AO while completing the assessment under section 143(3) disallowed the said advertisement expenditure on the ground that the assessee has not commenced its business/operation during the year under consideration and, therefore, expenses must have been capitalized. Thus the particulars of all the income and expenditure were already produced by the assessee and rather part of the return of income. The AO has not pointed out that any part of the income or expenditure was not produced by the assessee but all the particulars and details were available before the AO during the assessment proceedings. Though the claim of advertisement expenditure made by the assessee was disallowed on the ground that it should have been capitalized as the assessee has yet to commence its operation, however, when the assessee has furnished all the details and particulars and the books of account of the assessee audited by the statutory auditor appointed by the CAG then such a claim which is not against the accounting standard cannot be held as malafide or bogus claim on the part of the assessee. The assessee has made a claim of deduction on account of advertisement expenditure which was not found to be allowable by the AO.

Therefore, it is only a case of disallowance of claim due to the reason of difference of opinion. The assessee had a bonafide belief when the accounts of the assessee were duly audited through the CAG and no adverse comments were made regarding the said claim of advertisement expenditure by the auditor. Even the tax auditor has also not pointed out any such deficiency or mistake in making the claim of advertisement expenditure as revenue. Thus it is only a difference of opinion about the nature of claim of expenditure as claimed by the assessee but was found to be not allowable but to be capitalized in the opinion of the AO. Once the AO has not pointed out any discrepancy or any deficiency in the accounts or particulars furnished by the assessee, then the mere disallowance of claim would not lead to the conclusion that the assessee is guilty of furnishing inaccurate particulars of income or concealment of particulars of income attracting the penalty provision under section 271(1)(c) of the IT Act. The Hon’ble Supreme Court in case of CIT vs. Reliance Petro Products Pvt. Ltd. (supra) has held in para 9 to 11 as under :-

It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.

In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu[2009] 23 VST 249 as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed : "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.”

In the result, appeal of the assessee is allowed.