CLIQUE DEVELOPMENTS LTD,MUMBAI vs. ITO 9(1)(2), MUMBAI

The present appeal filed by the assessee is directed against the order passed by the CIT(A)- 20, Mumbai, dated 12.04.2016, which in turn arises from the order passed by the A.O under Sec.271(1)(c) of the Income Tax Act, 1961 (for short „I.T Act‟), dated 30.09.2013. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:

Briefly stated, the assessee company had filed its return of income declaring loss of Rs.18,61,198/- on 13.10.2018. Subsequently, the case of the assessee was selected for scrutiny assessment and its income was assessed, vide order passed under Sec.143(3), dated 14.03.2013 at a loss of Rs.2,96,260/-. The A.O while framing the assessment observed that the assessee had claimed stamp duty and registration fees of Rs.5,60,000/- incurred in connection with increase in the authorized share capital from Rs.1.6 crores to Rs.9.6 crore as a revenue expenditure. The A.O being of the view that as the expenses incurred for increasing the authorized share capital was towards expanding the capital base of the assessee company and thus in the nature of a capital expenditure, therefore, backed by such conviction called upon the assessee to justify the claim of the same as a revenue expenditure. The explanation of the assessee that the expenses incurred for increasing the authorized share capital were in the nature of a revenue expenditure allowable under Sec.36(1) of the I.T Act, however did not find favour with the A.O. In fact, the AO held a conviction that as the said expenses were incurred in connection with enhancement of the capital base of the assessee company, therefore, the same were clearly in the nature of a capital expenditure. In the backdrop of his aforesaid observations the A.O disallowed the aforesaid claim of expenditure on account of stamp duty and registration fees of Rs. 5,60,000/- and added back the same to the total income of the assessee.

The A.O while culminating the assessment also initiated penalty proceedings under Sec.271(1)(c) for “furnishing of inaccurate P a g e | Clique Development Ltd. Vs. ITO-9(1)(2) particulars of income” by the assessee in context of the aforesaid disallowance of stamp duty and registration fees. The reply filed by the assessee to impress upon the A.O that no penalty under Sec.271(1)(c) was liable to be imposed in its hands, did not find favour with him. The A.O being of the view that the assessee had raised an ex-facie wrong claim imposed a penalty of Rs.1,75,000/- under Sec.271(1)(c).

Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) after deliberating on the contentions advanced by the assessee was not persuaded to subscribe to the same and dismissed the appeal.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee took us through the facts of the case which had led to imposition of penalty under Sec.271(1)(c) in the hands of the assessee. It was submitted by the ld. A.R that the A.O had saddled the assessee with penalty under Sec.271(1)(c), only for the reason that its claim of deduction of the fees paid for increase in the authorised share capital was declined by the A.O and held to be a „capital expenditure‟. It was averred by the ld. A.R that now when the complete details in respect of the aforesaid expenditure were disclosed by the assessee in its return of income, therefore, merely for the reason that the same was disallowed by the A.O would not justify saddling the assessee with penalty under Sec.271(1)(c) of the I.T Act.

Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities.