M/S. GIESECKE & DEVRIENT INDIA PVT. LTD.,GURGAON vs. DCIT, NEW DELHI

The assessee is mainly aggrieved by levy of penalty u/s. 271(1)(c) on account of disallowance of ‘legal and professional’ expenses for sum of Rs.36,11,832/- and disallowance account of building repair expenses of Rs.19,93,239/-. The relevant observation for making the disallowance out of legal and professional charges by the Assessing Officer was as under:- 5. Disallowance out of legal & professional charges On perusal of legal & professional charges it is sees that assesses has debited Rs. 2,50,32,832/ and paid to holding company. Regarding management consultancy of Rs. 2,14,21,000/- the amount has been added by TPO. In the transfer pricing order dated 27-10-2009, TPO has recommended enhancement of Rs. 2,14,20,000/- on the basis that no such service has been provided by earlier of AEs to allow this payment. Remaining amount of Rs. 36,11,832/-, if observation of TPO is taken into consideration this amount cannot be allowed as TPO has observed that, no such consultancy was given by holding company. AR was asked to justify genuineness and business connection of this payment. AR has submitted that the payment was made for certain consultancy services provided by holding company. With the submissions dated 30-11-2009, assessee filed invoice for the payment of said amount. On perusal of invoice, it is seen that assessee has received an item i.e. 1 PC - Item No. 10001669 which clearly indicates that this expenditure is of capital nature and cannot be allowed as revenue expenditure. Therefore, the whole amount of Rs.36,11,832/- is held to be capital expenditure and disallowed and added back to the income of the assessee. Since the assessee has filed incorrect particulars of its income, penalty proceedings under section 271(1)(c) have been initiated separately. (Addition of Rs.36,11,832/-)

These additions have been confirmed by the Tribunal in the quantum proceedings. Both the Assessing Officer and Ld. CIT (A) has confirmed the penalty on these additions merely on the ground that the quantum proceedings stands confirmed.

The learned counsel for the assessee, in so far as the building and repair expenses are concerned submitted that the assessee during the course of appellate proceedings has filed additional evidences in the form of lease agreement as property was on rent, copy of ledger account, vouchers for repair and maintenance expenses, details of contactor Sarvamanglam Builders Private Limited who has carried out the work with details of deduction of TDS, etc. The Ld. CIT (A) rejected the additional evidences which were filed during the course of penalty proceedings before him in support of the expenditure which could not be filed earlier. Similarly with regard to legal and professional charges, the assessee has filed the bills and copy of original invoices dated 21st December, 2005 for consultancy charges amounting to Rs.36,11,832/- raised by M/s. Geisecke & Divrient GmbH Germany. The addition was made on the ground that these invoices and consultancy services was with respect to capital asset and hence it was capital in nature. The factum of incurring and payment of such expenditure has not been doubted.

On the other hand, ld. DR has strongly relied upon the order of the Assessing Officer and Ld. CIT (A).

After considering the aforesaid submissions and on perusal of the relevant material placed on record, we find that, in so far as the disallowance of legal and professional charges of Rs.36,11,832/- is concerned, same has been paid by the assessee to its AE for consultancy services for which invoice was also filed. The disallowance has been made merely on the ground that the invoice mentions that the assessee has received and item, IPC – item no. 10001669 and hence it was treated as capital in nature and not revenue in nature. Simply because, the consultancy services has been treated as capital in nature by the Assessing Officer that does not mean that assessee has furnished any inaccurate particulars of income so as to warrant levy of penalty u/s.271(1)(c), especially when there is no doubt about the factum of incurring of such expenditure and the genuineness of which stands established. In these facts, the penalty on such disallowance is directed to be deleted. 7. Now in so far as building repair expenses are concern, the assessee has carried out repair and maintenance for which it has paid to third party M/s. Sarvamanglam Pvt. Ltd. and these repair and maintenance was carried out on the rented place taken by the assessee for its business. However, out of total disallowance of Rs.31,93,239/- the amount finally sustained in the quantum proceedings was Rs.19.93 lacs. Thus, part of the same expenditure has been allowed. During the course of penalty proceedings, before the ld. CIT (A), assessee has filed all the details and evidences for the amount of Rs.19,93,239/- for which ld. CIT(A) has refused to admit. It is a trite law that penalty proceedings are separate and distinct from assessment proceedings and the assessee during the course of penalty proceedings can substantiate its claim by providing evidences or explaination that it is not guilty for furnishing of any inaccurate particulars of income. If the assessee could not furnish the evidences during the assessment proceedings then it does not preclude the assessee to furnish those evidences to substantiate its claim during the course of penalty. Penalty is not adjunct to assessment, it’s a separate proceedings and assessee has right to rebut the charges levied on him which he may not have in quantum due to any circumstances. Accordingly, the action of the ld. CIT (A) to reject these evidences which goes to prove the incurring of expenditure by the assessee which is ostensibly revenue in nature, and therefore, in these circumstances in the light of the evidences placed on record, it cannot be held that the assessee had furnished any inaccurate particulars of income so as to warrant any levy of penalty u/s. 271(1)(c). Accordingly, the same is directed to be deleted. 8. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 5th February, 2021