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Facts
The assessee, a civil contractor, had its assessment reopened by the AO who disallowed expenses claimed as write-off of capital expenditure, treating them as capital in nature. Consequently, the AO levied penalty under section 271(1)(c) for alleged inaccurate furnishing of particulars.
Held
The Tribunal held that the distinction between a wrong claim and a false claim is crucial, and the AO failed to establish that the claim was false or that there was any concealment of income. The matter of revenue vs. capital expenditure was considered a debatable issue, making the penalty unsustainable.
Key Issues
Whether penalty under section 271(1)(c) is leviable when the disallowance is based on a debatable issue of capital vs. revenue expenditure and the assessee's claim is considered a wrong claim rather than a false claim.
Sections Cited
271(1)(c), 143(3), 147, 36(i)(vii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: SHRI SATBEER SINGH GODARA, HONBLE JUDICIAL & SHRI NAVEEN CHANDRA, HONBLE
ORDER PER NAVEEN CHANDRA [A. M]:
The above captioned appeal is preferred by the assesseeagainst the orders dated19.08.2016, by Ld. CIT(A)-2, New Delhi, u/s 250(6) of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for A.Y. 2005-06.
This is a case of penalty u/s 271(1)(c). None appeared from the assessee side therefore, we decided to proceed ahead ex-parte with 1 | P a g e 5724_DEL_2016_CIMMCO LTD the assistance of the ld DR. We heard the Ld. DR at length and perused the case record.
The assessee is a civil contractor and had filed a nil original return which was assessed at Rs 1,13,64,700/- u/s 143(3). The assessing officer, thereafter reopened and framed a re-assessment order u/s 143(3)/147 on 28.12.2011 disallowing the claim of Rs 1,04,81,261/- on account of write off capital Expenditure in P & L account. The said claim included an expense of Rs. 72,06,320/- as export benefits as non-recoverable and Rs. 32,72,941/- as security deposit which was disallowed by the AO u/s 36(i)(vii).
The AO has levied penalty on the said disallowance u/s 271(1)(c) and the Ld. CIT(A) has confirmed the same on account of the fact that there is no explanation from the assessee on inaccurate furnishing of particulars of income and the assessee had failed to prove that there is no fraud and neglect in filing of return of income. 4. The Ld. DR, before us stated that the Auditor had quantified the said expense as capital expenditure which was disallowed. The ld DR submitted that as the assessee filed inaccurate particulars, the penalty u/s 271(1)(c) was levied.
We have heard the submissions and perused the materials on record. We find that the disallowance was made as the AO considered the said expense as being capital in nature. We find that the assessee 2 | P a g e 5724_DEL_2016_CIMMCO LTD considered the unrecoverable export benefits and security deposit on revenue account whereas the AO treated the same on the capital account. We find an expense being on revenue or capital account is subject of a different interpretation of law and is a "debatable issue," and therefore we are of the considered view that penalty u/s 271(1)(c) on such an addition is not warranted.In the instant case, we are of the view that the assessee may have made a wrong claim but not a false claim. There is a difference between wrong claim and a false claim. A false claim may invite punitive action of the Department. We are of the view that theAO has failed to establish that there isa false claim and that there is any concealment of income or there is any inaccurate particulars furnished by the assessee. Following the decision of Hon’ble Supreme Court of India, in the case of Reliance Petro Products Ltd, (2010) 322 ITR 158 (SC),we direct the AO to delete the penalty levied.
In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 02.02.2026.