COMMISSIONER OF INCOME TAX PATIALA vs. M/S HERO CYCLE LTD

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ITA/29/2015HC Punjab & HaryanaPHHC01109928201505 May 2015Bench: MR. JUSTICE M.M. AGGARWAL,MR. JUSTICE A.B. CHAUDHARI2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the revenue. The Tribunal had agreed with the CIT (Appeals) that the penalty under Section 271(1)(c) ought not to have been imposed. The Court found no reason to interfere with the exercise of discretion by the lower authorities, stating it was not unfair, unreasonable, or perverse. The reasoning was that although the quantum proceedings were decided against the assessee, there was no indication of suppression of facts or misleading of authorities. The assessee had made a legal contention regarding the nature of the expense. The Tribunal's reliance on the Supreme Court's decision in CIT Vs Reliance Petroproducts Pvt. Ltd. was considered well-founded, as the Supreme Court had observed that a penalty cannot be imposed merely because a legal contention was decided against the assessee, provided there was no concealment or inaccurate particulars. The Court noted that earlier decisions of the CIT (Appeals) had allowed the expenses as revenue, and the subsequent reversal by the Tribunal was based on a later Supreme Court judgment. Therefore, the assessee's belief was considered bona fide.

What were the facts?

The appeal by the Commissioner of Income Tax-II, Ludhiana (appellant/revenue) challenges the Income Tax Appellate Tribunal's order dated 20.05.2013. The Tribunal had dismissed the revenue's appeal against the CIT (Appeals)'s order, which had set aside the Assessing Officer's (AO) order imposing a penalty under Section 271(1)(c) of the Income Tax Act, 1961. The dispute pertains to the assessment year 2002-2003. The assessee, M/s Hero Cycles Ltd. (respondent), had claimed a deduction for work done on the factory roof, treating it as a revenue expense. While the quantum proceedings, which determined this expense to be capital in nature, have attained finality against the assessee, the penalty proceedings were decided in favour of the assessee.

What were the issues?

1. Whether the Tribunal erred in upholding the CIT (Appeals)'s decision to set aside the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, despite the quantum of expense being held as capital in nature? Assessee's contentions: The assessee contended that it had bona fide believed the expenses were revenue in nature and made a legal contention to that effect. There was no concealment of facts or misleading of authorities. The assessee relied on the Supreme Court's judgment in CIT Vs Reliance Petroproducts Pvt. Ltd., 322 ITR 158, which held that a penalty under Section 271(1)(c) cannot be imposed merely because a legal contention was decided against the assessee, if there was no concealment or furnishing of inaccurate particulars. Revenue's contentions: The revenue's argument, as understood from the judgment, was that the penalty should follow once the quantum proceedings determined the expense to be capital. The judgment does not explicitly record separate arguments from the revenue beyond this implication.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA-29-2015 (O&M) Date of decision:- 05.05.2015

The Commissioner of Income Tax-II, Ludhiana ...Appellant Versus

M/s Hero Cycles Ltd. ...Respondent

CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE

HON’BLE MR. JUSTICE G.S. SANDHAWALIA

Present: Ms. Savita Saxena, Advocate,

for the appellant. * * * * S.J. VAZIFDAR, A.C.J. (ORAL) CM-3371-CII-2015 (for condonation of delay in refiling)

For the reasons mentioned in the application, the delay of 360 days in refiling the appeal is condoned.

Disposed of. CM-3372-CII-2015 (for exemption)

The application is allowed subject to all just exceptions. ITA-29-2015 This is an appeal against the order of the Income Tax Appellate Tribunal dated 20.05.2013 dismissing the appellant’s appeal against the order of the CIT (Appeals) which set aside the A.O’s order imposing a penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. The matter pertains to the assessment year 2002-2003. The respondent/assessee claimed a deduction in respect of the work done on the roof of the factory contending that it was a revenue expense. The quantum proceedings, we are informed, have attained finality and have been decided against the respondent/assessee. It has been held that the same was a capital expense. We would presume that to be so. The Tribunal has, however, agreed with the CIT (Appeals) that the penalty ought not to be imposed for there does not appear to have been any concealment of the relevant facts. The assessee bonafide contended that it is entitled to treat the expenses on revenue account. It is not contended that merely because the quantum AMODH SHARMA 2015.05.07 14:43 I attest to the accuracy and authenticity of this document chandigarh

ITA-29-2015 (O&M)

proceedings are decided against the assessee, penalty must follow irrespective of the facts and circumstances of the case. The CIT (Appeals) has in a detailed judgement considered the law and the facts. The Tribunal has agreed with the same. We see no reason to interfere with the exercise of discretion by the authorities. The exercise of discretion cannot be said to be unfair, unreasonable or perverse. 3. It is sufficient to note only a few things. There were several decisions of the CIT (Appeals) in the respondent’s own case. Earlier, the CIT (Appeals) had allowed the expenses to be treated on revenue account. The Tribunal had several years later held in favour of the revenue holding that the expenses must be held to be on capital account. This was the basis of a judgement of the Supreme Court which was rendered subsequently. Thus, though the quantum appeal has been decided against the respondent, there is nothing to indicate that the respondent suppressed any fact or that the respondent misled the authorities. It was a legal contention. In these circumstances, the Tribunal’s reliance upon the judgement of the Supreme Court in CIT Vs Reliance Petroproducts Pvt. Ltd., 322 ITR 158 was well founded. The observations of the Supreme Court have been specifically mentioned in the concluding paragraph of the decision of the Tribunal itself. 4. The appeal is, therefore, dismissed.

(S.J. VAZIFDAR) ACTING CHIEF JUSTICE

(G.S. SANDHAWALIA)

JUDGE 05.05.2015 Amodh

AMODH SHARMA 2015.05.07 14:43 I attest to the accuracy and authenticity of this document chandigarh

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