M/S. CIMMCO LTD.,NEW DELHI vs. ITO, NEW DELHI

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ITA 5724/DEL/2016Status: DisposedITAT Delhi11 February 2026AY 2005-064 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty levied under Section 271(1)(c) was not warranted. The disallowance was made because the AO considered the expense to be capital in nature, while the assessee treated unrecoverable export benefits and security deposit as revenue expenditure. The Tribunal found that the classification of an expense as revenue or capital is subject to different interpretations of law and constitutes a 'debatable issue'. Therefore, imposing a penalty on such an addition is not justified. The Tribunal distinguished between a 'wrong claim' and a 'false claim', stating that only a false claim may invite punitive action. The AO failed to establish that the claim was false, that there was any concealment of income, or that inaccurate particulars were furnished. Following the decision of the Hon'ble Supreme Court of India in Reliance Petro Products Ltd. (2010) 322 ITR 158 (SC), the Tribunal directed the AO to delete the penalty levied. No issue was expressly left undecided.

What were the facts?

The assessee, M/s Cimmco Ltd, filed a nil return for Assessment Year 2005-06. The Assessing Officer (AO) assessed the income at Rs 1,13,64,700/- under Section 143(3). Subsequently, the AO reopened the assessment under Section 143(3)/147 and framed a reassessment order on 28.12.2011. In this order, the AO disallowed a claim of Rs 1,04,81,261/- for written-off capital expenditure in the Profit & Loss account. This disallowed claim comprised Rs 72,06,320/- for unrecoverable export benefits and Rs 32,72,941/- for security deposit, which the AO disallowed under Section 36(1)(vii). The AO also levied a penalty under Section 271(1)(c) on this disallowance. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the penalty, noting the assessee's failure to provide an explanation regarding inaccurate particulars or to prove the absence of fraud and neglect.

What were the issues?

1. Whether the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, is sustainable when the disallowance pertains to a debatable issue of whether an expense is capital or revenue in nature? Assessee's Contention: The assessee did not appear before the Tribunal. However, the Tribunal's reasoning implies the assessee considered the unrecoverable export benefits and security deposit as revenue expenditure. The Tribunal noted that the assessee may have made a wrong claim but not a false claim. Revenue's Contention: The Revenue, represented by the CIT DR, argued that the auditor quantified the expense as capital expenditure, which was disallowed. The Revenue contended that since the assessee filed inaccurate particulars, the penalty under Section 271(1)(c) was rightly levied. The CIT(A) confirmed the penalty, citing the assessee's failure to provide an explanation regarding inaccurate particulars or to prove the absence of fraud and neglect.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 143(3),Section 147,Section 36(1)(vii),Section 250(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI

Before: SHRI SATBEER SINGH GODARA, HON’BLE JUDICIAL & SHRI NAVEEN CHANDRA, HON’BLE

For Respondent: Ms. Monika Singh, CIT DR
Hearing: 02.02.2026Pronounced: 02.02.2026

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.

2.

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.

3.

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).

4.

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.

5.

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.

6.

In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 02.02.2026.

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