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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri Saktijit Dey & Shri G. MANJUNATHA,
�नधा�रती क� ओर से / Assessee by Shri K. Gopal राज�व क� ओर से / Revenue by Shri Jothilakshi Nayak सुनवाई क� तार�ख / Date of Hearing : 18/06/2019 28/06/2019 आदेश क� तार�ख /Date of Order: आदेश / O R D E R
Per G. Manjunatha, Accountant Member
This appeal filed by the assessee is directed against order of the Ld CIT(A)-2, Mumbai, dated 01/04/2017, and it pertains to Assessment Year-1996-97.
The assessee has raised following grounds of appeal:- “1.The Ld. CIT(A) erred in upholding penalty u/s 271(1)(c) of the Act on addition of Rs.17,86,417/- in a case where assessed loss stands reduced from returned loss for AY 1996-97. 2.Without prejudice to the first ground the Ld. CIT(A)/AO erred in levying penalty on addition of Rs.17,86,417/- related to deduction u/s 35D of the Act.”
2 M/s Kumatka Industries Ltd. (formerly known as M/s Ashok Organic Industries Ltd.) 3. The brief facts of the case are that the assessee has filed its return of income for assessment year 1996-97, declaring total income of Rs.4,56,83,006/-. The assessment has been completed under section 143(3) of the Act, on 28/10/1998, and determined total loss at Rs.3,80,36,212/- by making additions of Rs.75,87,794/-on account of share issue expenses and interest due from USM Enterprises. Thereafter, the assessing officer has initiated penalty proceedings under section 271(1)(c) of the Act and levied penalty of Rs.30,35,118/-, in respect of two additions, i.e. addition of Rs17,86,417 in respect of share issue expenses and addition of Rs.58,13,377/- in respect of interest due from USM Enterprises. Against the penalty order, the assessee filed appeal before the Ld CIT(A) . The Ld CIT(A) vide its order dated 11/01/2000, dismissed the appeal, as there was delay in filing appeal. The assessee carried the matter in further appeal before the ITAT. The ITAT has set aside the matter to the file of Ld. CIT(A) with direction to decide issue on merits.
During second round of proceedings, the Ld CIT(A) after considering relevant submissions of the assessee deleted penalty levied by the AO in respect of interest receivables at Rs,58,01,377/- On the ground that the assessee company had sufficient own funds to advance loans to its sister concern and therefore additions made by AO towards interest receivables cannot be sustainable, consequently penalty under section 271(1)(c) cannot be levied. In so far as disallowance of share issue expenses of Rs.17,80,470, the Ld. CIT(A) sustained penalty levied by the AO on the ground that even though the law is very clear in respect of deductibility of expenses u/s 35D to the extent of 2.5% of the cost of projects, the assessee has claimed 10% of the total expenditure which amounts to wrong claim, therefore, there is no error in the findings of the AO in levying penalty under section 3 M/s Kumatka Industries Ltd. (formerly known as M/s Ashok Organic Industries Ltd.) 271(1)(C) of the Act. Aggrieved by the order of the Ld CIT(A), the assessee is in appeal before us.
The ld AR For the assessee submitted that the Ld. CIT(A) was erred in confirming penalty levied by the AO under section 271(1)(c) of the Act, in respect of disallowance of share issue expenses without appreciating the fact that mere making claim does not tantamount to furnishing of inaccurate particulars of income or concealment of income within the meaning of section 271(1)(c) of the Act. The Ld AR further submitted that the assessee has disclosed necessary facts with regard to deduction claimed under section 35D in respect of share issue expenses, but the AO has pointed out certain mistakes which have been accepted by the assessee and agreed for disallowance. The AO has nowhere stated that the assessee has misrepresented facts in respect of share issue expenses, but disputed claim of expenditure. The assessee has claimed 10% of total expenditure whereas the AO has restricted to 2.5% of cost of project, therefore, mere making a claim which is not allowable or disallowed by the AO cannot lead to conclusion that the assessee has furnished inaccurate particulars of income, which warrants levy of penalty u/s 271(1)(c) of the Act. In this regard, he relied upon the case of CIT vs Reliance Petro Products Pvt. Ltd. (2010) 230 CTR 320.
The Ld DR on the other hand, strongly supported the order of the Ld CIT(A), and submitted that It is a fit case for levying penalty, because the assessee has made a wrong claim which is not sustainable under the law. Therefore, there is no merit in the claim of the assessee that mere making claim which is not allowed or allowable under the Act, cannot lead to a conclusion that the assessee has concealed particulars of income, because
4 M/s Kumatka Industries Ltd. (formerly known as M/s Ashok Organic Industries Ltd.) making of claim which is not allowable under the act is as good as making a false claim within the meaning of section 271(1)(c) of the Act, therefore, the AO was right in levying penalty 271(1)(c) of the Act, in respect of share issue expenses and his order should be upheld.
We have heard both parties, perused the material available on record and gone through the orders of authorities below. The AO levied penalty in respect of share issue expenses on the ground that the assessee has furnished inaccurate particulars of income in respect of deduction claimed under section 35D in respect of share issue expenses.
According to the AO, the assessee has made wrong claim, even though the law is very clear in respect of deduction under section 35D, as per which the assessee was entitled to claim deduction towards share issue expenses in 10 equal instalments, but such claims should be restricted to 2.5% to the cost of project. Although the law is very clear, but the assessee has made a claim of 10% of total expenditure incurred in respect of share issue expenses, therefore, he opined that the assessee has deliberately made a wrong claim to evade payments of taxes which warrants levy of penalty u/s 271(c) of the Act. It is a claim of the assessee that mere making a wrong claim or bona fides mistake in the claim does not tantamount to furnishing of inaccurate particulars of income, more particularly when primary facts with regard to the issue has been fully disclosed in the financial statements. The assessee further claimed that the dispute is with regard to the quantum of deduction claimed under section 35D, otherwise the AO has never disputed the fact that the assessee is entitled for deduction under section 35D of the act, therefore making a claim which is not 5 M/s Kumatka Industries Ltd. (formerly known as M/s Ashok Organic Industries Ltd.) substantiable under the Act cannot be considered as furnishing inaccurate particulars of income levy penalty under section 271(1)(c) of the Act.
7. Having heard both sides and considered material on record, we find merit in argument of the assessee that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue that by itself would not attract penalty u/s 271(1)(c) of the Act, when the assessee has disclosed primary facts with regard to the claim of expenditure. This legal proposition is supported by the decision by Hon’ble Supreme Court in the case of CIT vs Reliance Petro Products Ltd (supra), where the Court held that merely because, the assessee has claimed expenditure which was not accepted by the revenue that by itself would not attract penalty under section 271(1)(c) of the Act. If the contention of the Revenue is accepted, then in case of every return where claim was made not accepted by the AO for any reason, the assessee would invite penalty u/s 271(1)(c) of the Act. That is not the intention of the legislature. The Hon’ble Supreme Court has considered identical issue in the case of Price Waterhouse Coopers (P.) Ltd. vs. Commissioner of Income-tax, (2012) 253 CTR 1(SC), where it was held that no penalty can be levied for inadvertent error or bona fide mistakes while submitting return. In this case on perusal of facts, we find that the assessee has filed complete details in respect of share issue expenses even though the claim made under section 35D was incorrect. Although, the AO has disallowed of deduction claimed under section 35D, but yet not disputed the entitlement of the assessee for deduction u/s 35D of the Act in respect of share issue expenses. Therefore, making wrong claim or a bona fide mistake in computation of entitlement of deduction cannot be considered as deliberate attempt to furnish inaccurate
6 M/s Kumatka Industries Ltd. (formerly known as M/s Ashok Organic Industries Ltd.) particulars of income, so as to evade payments of tax which warrants penalty u/s 271(1)(c) of the Act. Therefore, we are of the considered view that the AO was erred in levying penalty u/s 271(1)(c) of the Act in respect of share issue expenses and hence direct the AO to delete penalty levied in respect of share issue expenses.
In the result, appeal filed by the assessee is allowed.