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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-1, Ahmedabad (CIT(A)’ in short), dated 15.01.2015 arising in the penalty order dated 30.12.2012 passed by the Assessing Officer (AO) under s.
[DCIT vs. CLP Power India Pvt. Ltd.] A.Y. 2007-08 - 2 - 271(1)(c) of the Income Tax Act, 1961 (the Act) concerning AY 2007- 08.
As per its grounds of appeal, the Revenue seeks to challenge the action of the CIT(A) whereby the penalty of Rs.1,59,91,080/- imposed by the AO was reversed.
3. When the matter was called for hearing, the learned DR for the Revenue relied upon the penalty order passed by the AO and submitted in furtherance that the claim of the assessee towards certain expenditure on account of professional fees, travelling expenses and tender expenses aggregating to Rs.4,75,07,667/- concerning new power projects were wrongfully claimed as revenue expenditure by the assessee. It was submitted that the expenditure so claimed was disallowed by the AO in quantum proceedings and held the same to be capital expenditure. Quantum additions have been upheld by the concurrent findings of the CIT(A) as well as of ITAT. The learned DR referred to the decision of the Tribunal in quantum proceedings against the assessee in & 3214/Ahd/2011 order dated 21.02.2014 in this regard. The learned DR thus submitted that the observation of the Tribunal in quantum proceedings would establish that assessee has wrongly claimed expenditure of capital nature as revenue item. It was contended that the action of the assessee lacks bonafide and is thus covered by Explanation 1 to Section 271(1)(c) of the Act.
The learned AR for the assessee, on the other hand, submitted that the CIT(A) has examined the issue in perspective and rightly held that the issue is highly debatable and not free from doubt. It was pointed out that appellate order of the ITAT in quantum proceedings has been duly admitted by the Hon’ble Gujarat High Court vide order dated 15.07.2014 (copy placed in file) for appraisal of substantial question of law amending on the issue. The learned counsel thereafter referred to the [DCIT vs. CLP Power India Pvt. Ltd.] A.Y. 2007-08 - 3 - decision of the Hon’ble Delhi High Court in CIT vs. Electrolux Kelvinatro Ltd. (2013) 357 ITR 665 (Delhi) for the proposition that where the issue of allowance of expenditure as revenue expenditure or capital nature is debatable, mere disallowance of assessee’s claim could not be a ground to impose penalty under s.271(1)(c) of the Act. Another reference was made to the decision rendered in CIT vs. Amtek Auto Ltd. [2013] 352 ITR 394 (Punjab & Haryana) wherein the aforesaid position has been reaffirmed that where the assessee has claimed expenditure as revenue, which was held as capital by AO, could not be the reason for imposition of penalty.
4.1 Adverting to the facts, the learned counsel submitted that the assessee is engaged in the business of development of power projects and operations and maintenance of power projects. The development of power projects being the business of assessee, the assessee initiated several projects. A detailed note of each project was placed before the AO showing its status and reason for creating the project as recorded in para 6 of the assessment order. It was pointed out that various projects could not be persuaded for feasibility reasons ranging from stiff timeline and bid conditions, unsuccessful biding, bid process coordination extension of time not agreed and so on and so forth.
4.2 The learned counsel submitted that after the decision in the quantum proceedings in February 2014, the Hon’ble Gujarat High Court in DY. CIT(ASSTT) vs. Gujarat Narmada Valley Fertilizers Co. Ltd. in Tax Appeal No. 447 of 2000 & Ors. has come out with favourable observations in its judgment rendered few months later in December 2014.
4.3 The learned counsel thus submitted that the disallowance of expenditure in quantum proceedings itself is highly vulnerable and debatable and therefore there is no warrant to question the bonafides of [DCIT vs. CLP Power India Pvt. Ltd.] A.Y. 2007-08 - 4 - the assessee incurring the expenditure and disclosing the particulars thereof correctly. It was submitted that mere change of complexion of expenditure from revenue to capital would not tantamount to furnish inaccurate particulars of income contemplated under s.271(1)(c) of the Act.
We have carefully considered the rival submissions. The controversy raised on behalf of the Revenue is on maintainability of penalty on disallowance of expenditure claimed as revenue expenditure which was held to be capital expenditure by the AO. On perusal of the order of the CIT(A), we observe that the CIT(A) has taken note of various contentions raised on behalf of the assessee and has recorded his findings in favour of the assessee as under:
“5. I have perused the facts of the case as enumerated by A.O. I have perused the case laws relied on by A.O.. After careful consideration of facts, submission and contention of A.O. ground wise adjudication is as follows: All the grounds are interlinked and against the imposition/levy of penalty u/s. 271(1)(C) of the Act. The appellant raised grounds both on technical issue as well as on merit. There are certain undisputed facts, which requires consideration before adjudication, these are as follows: (i) The appellant during previous year debited in profit & loss account and claimed expenses of Rs, 4,75,07,667/- as revenue expenses. The A.O. after observing tax audit report in form no. 3CD at Cl. 8(a) that appellant's business is " The assessee is engaged in inter alia in the business of development of power project and operation and maintenance of power projects" but reflected income from "operation & maintenance fees & other income" called for details of such expenses. As per para 6 of Asst. Order dt. 27/11/2008 u/s. 143(3) of the Act, the complete detail about such explanation in the form of professional fees, Travelling expenses, Tender expenses in respect of five projects was made available. The appellant was questioned about its allow-ability. The appellant filed detailed (project wise) explanation before A.O. vide order dt. 14/11/2009 (para 7 of the impugned Asst. Order dt. 27/11/2009). The A.O. rejected appellant's explanation with placing reliance on Hon'ble Gujarat High Court order in the case of Ambica Mills Ltd. 236 ITR 921, Shri Digvijay Cement Co. Ltd. 153 ITR 253, SLM Maneklal Industries Ltd. 107 ITR 133 and Hon'ble Madrass High Court order in the case of CID Parry (India) Ltd. 257 ITR 253 and held that "Although the auditors may have mentioned in the 3CD report, or that memorandum of Association may speak of the activity as one of the [DCIT vs. CLP Power India Pvt. Ltd.] A.Y. 2007-08 - 5 - objects none the less the fact remains that the proposed new plant was not business activity being carried on by the assessee". The A.O. disallowed claim of revenue of Rs. 47507667 as capital expenses and initiated penalty u/s. 271(1)(C)of the Act for furnishing inaccurate particulars of income. (ii) Ld. CIT(A)-VI Ahmedabad vide order dt. 16/12/2010 against such order dt. 27/11/2009 u/s. 143(3) of the Act considered appellant's explanation that (a) As per tax audit report there is no change in the nature of business of the assessee as compared to earlier years. A copy of objective and memorandum of Association (OCMA) was submitted. (b) Hon'ble Gujarat High Court in the case of GMDC Ltd. 314 ITR 322 and Hon'ble Gauhati High Court in the case of Assam Aesbestos Ltd. 263 ITR 357 held such expenses as revenue expenses. (c) The appellant relied on (i) Kesoram Industries & Cotton Mills Ltd. Vs. CIT [1992] 196 ITR 845 (Cat) (ii) CIT vs. Priya Village Roadshows Ltd. [2009] 185 Taxman 44 (Delhi) (iii) Indo Rama Synthetics (I) Ltd. Vs. CIT[2009] 185 Taxman 27(Delhi) (iv) CIT vs. Escorts Auto Components Ltd. [2010] 323 ITR 11 (Punj & Har.) (d) The A.O. has not granted depreciation an such capital expenditure. (e) The said expenditure had a direct and permanent nexus with the existing business operation and this loss is inherent in the carrying on of the business and is directly connected with and incidental to it. The ld. CIT(A) therefore held against appellant. The operation part had already been discussed at para 4D above. (iii) Hon'ble ITAT Ahmedabad also decided the matter as discussed at para 4E above. (iv) The appellant submitted a detailed reply during penalty proceedings as discussed above at para 4A. (v) The appellant submitted a copy of Hon'ble Gujarat High Court order dt. 09/12/2014 in the case of DY.CIT Vs. Gujarat Narmada Velloy Fertilizers Co. Ltd. (Tax appeal no. 447 of 2000 with appeal no. 522 of 2009 with tax appeal no. 2033 of 2009) where on the similar facts as that of appellant, Hon'ble Gujarat High Court held that such expenditure for expansion of business, projects which were not materialized are revenue expenses. It was contended that this order of Hon'ble Gujarat High Court considered ratio of various case laws as considered by A.O. It was emphasized that there are two different opinions on the same issue, hence on this issue penalty is not exigible. I am inclined with appellant that on the facts & circumstances as that of appellants, the penalty u/s. 271(1)(C) of the Act is not exigible on many accounts duly supported by legal preposition. These are as follows: (i) The appellant claimed such expenses on the basis of audited accounts and tax audit report which has not brought out these expenditure as capital in nature. It is therefore the bonafide for the claim of such expenditure cannot be doubted or questioned.
[DCIT vs. CLP Power India Pvt. Ltd.] A.Y. 2007-08 - 6 -
(ii) All the details & material facts were either disclosed or submitted before A.O. as and when asked for. None of these expenses were found bogus or excessive. These genuine expenses were disallowed being held as capital in nature. This preposition cannot lead to satisfaction that appellant has furnished inaccurate particulars of income. (iii) There are two opinions on this issue, Even Hon'ble Gujarat High Court's latest order in the case of GNFC (Supra) as relied on is in favour of appellant. This reflects that issue is contentious in nature and debatable. In view of latest order of Hon'ble Gujarat High Court, the ratio is binding on lower appeal authorities. It is therefore despite Hon'ble ITAT considered the issue against appellant, the penalty is not exigible. (iv) Apart from ratio of Hon'ble Supreme Court order in the case of Reliance Petro Product Ltd. (Supra), there are plethora of judgement which directly dealt with the issue that if any of the revenue expenses claimed is treated as capital expenditure then penalty u/s. 271(1)(c) of the Act is not exigible on such amount. It is therefore, the satisfaction so drawn by A.O. and penalty so levied of Rs. 1,59,91,080 is neither justified nor sustainable. The A.O is directed to delete the penalty so imposed. The appellant gets relief accordingly. All the grounds are treats as allowed.”
As noted above, the CIT(A) has observed that the expenditure incurred by the assessee has a direct and proximate nexus with the existing business operations and the loss incurred was inherent in carrying on of the business. The genuineness of expenses incurred has not been doubted per se. What is the subject matter of controversy is the nature of expenditure that is whether the expenditure incurred would acquire the character of capital expenditure or a revenue expenditure. The CIT(A) has demonstrated in its order that the issue is sufficiently debatable and there is sufficient room for entertaining a different view. Needless to say, the conclusion drawn in the quantum proceedings would not automatically apply to the penalty proceedings which are distinct in character. The assessee is entitled to demonstrate its bonafide towards claim of expenditure in penalty proceedings. It is trite that every disallowance of claim cannot lead to as an automatic consequence in the form of penalty. The confirmation of addition/disallowance in quantum proceedings is not conclusive on standalone basis. In the absence of any malafide in the action of the assessee, we see no reason to interfere with [DCIT vs. CLP Power India Pvt. Ltd.] A.Y. 2007-08 - 7 - the order of the CIT(A). In the instant case, in our view, the CIT(A) has correctly applied law and deleted the penalty. We totally concur with the view expressed by the CIT(A). The Revenue could not demonstrate the lack of bonafide in the action of the assessee. The assessee with reference to several judicial precedents has demonstrated before us that the issue as to whether expenditure in question is capital or revenue is highly debatable. Coupled with this, the substantial question of law in the quantum proceedings has also been admitted for adjudication by the Hon’ble High Court in appeal under s.260A of the Act. In this background, we see not error in the order of the CIT(A).
In the result, the appeal filed by the Revenue is dismissed.
This Order pronounced in Open Court on 04/ 10/2019
Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 04/10/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।