DCIT 7(2)(1), MUMBAI vs. MAHINDRA & MAHINDRA FINANCIAL SERVICES LTD, MUMBAI

At the outset, it is noticed that the only issue in this appeal of Revenue is against the order of CIT(A) deleting the penalty levied by AO under section 271(1)(c) of the Act. For this Revenue has raised the following ground No. 1: -

Briefly stated facts are that the AO during the course of assessment proceedings disallowed the renovation expenditure carried out at the corporate office and incurred expenditure to the tune of Rs. 92,12,679/-, by holding the same as capital in nature. The same was affirmed by Tribunal in quantum appeal in for AY 2004-05 vide order dated 31.07.2012 by observing in Para 55 and 56 as under: - “55. We have considered the rival submissions and perused the orders of lower authorities and the Paper Book submitted by the assessee. The assessee has filed a statement showing item- 3 wise details of renovation expenses which are item-wised as under:

The assessee has also filed item-wise detail under each of the aforementioned heads. After carefully considering the items on which expenses have been incurred, we have no hesitation to hold that all the items of expenses give a benefits which are of enduring in nature to the assessee more so when the assessee himself states that the leased premises were occupied from 1.1.2004 and all the renovation expenses claimed by the assessee were incurred upto December, 2003. This itself shows that the expenses cannot be termed as “current repairs”. Considering the nature of expenses and the items on which they have been incurred, we do not find any reason to interfere with the findings of lower authorities. The expenses are in the nature of capital and as the 4 AO has already allowed deprecation, no further interference is called for. Ground No. 3 & 4 are accordingly dismissed.”

The AO initiated the penalty proceedings under section 271(1)(c) of the Act and levied the penalty only on the basis that the CIT(A) has confirmed the addition and for this the AO in his penalty order dated 25.03.2009 observed in Para 4 and the relevant Para read as under: - “Renovation Expenditure and Architect Fees totaling of ₹ 92,37,716/- which were inaccurately debited to P&L account as revenue expenses, but were actually capital in nature as held by the Assessing Officer and upheld by the CIT(A).”

Thereby the AO held that he is satisfied that the assessee committed default in furnishing of inaccurate particulars of income and thereby levied the penalty under section 271(1)(c) of the Act on the above items. Here, we want to clarify that on other items also penalty was levied, but which is not the issue before us. The CIT(A) deleted the penalty by observing that the assessee has made claim of repair and renovation expenses, which was held as capital in nature instead of revenue, thereby, the AO disallowed the same. Even the Tribunal has confirmed on the very premises as noted above. According to CIT(A), this is merely a wrong claim and not a false claim. According to CIT(A) the genuineness of expenditure is not in doubt and even full particulars were of all these expenses were furnished before the AO during the during the assessment proceedings. Hence, CIT(A) deleted the penalty. Aggrieved, Revenue came in appeal before Tribunal.

We have heard rival contentions and gone through the facts and circumstances of the case. The leaned Sr. Departmental Representative 5 only relied on the assessment order of CIT(A) and Tribunals order in quantum appeal. When a query was put to learned Sr. DR by the Bench, he could not state that apart from confirmation of addition on this expenditure, the penalty is levied on any other reason. He could not answer.

We find from the facts of the case that the assessee had disclosed these expenses and claimed for renovation i.e. repairs and maintenance and architect expenses and claiming the same as revenue expenditure vide audited accounts and particularly note to accounts at serial No. 13, which is forming part of the financial statement. These facts have been noted by AO in his quantum order vide Para 5.1. Even the tax auditors have not treated these expenses as capital expenditure as is evident from tax audit report Annexure 6 clause 7(a) of the audit report. We noted that it is not the case of revenue that the assessee has not provided the details and explanation to justify its claim of this expenses being revenue in nature, even the bonafide of the claim was never doubted by the department and hence, there is no question of furnishing of inaccurate particulars of income. Even otherwise, the liability of renovation expenses on lease premises whether capital or revenue in nature is debatable issue. Hence, we are of the view that the CIT(A), who has rightly deleted the penalty and we affirm the same. The appeal of Revenue is dismissed.

In the result, the appeal of Revenue is dismissed.