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PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER This appeal has been preferred by the revenue against the order dated 30.12.2013 passed by the Ld. CIT (A)-XVII, New Delhi for assessment year 2006-07 wherein vide the impugned order, the Ld. CIT (A) has deleted the penalty of Rs. 31,34,639/- imposed by the AO u/s 271(l)(c) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
Brief facts of the case are that under the assessment order passed u/s 143(3), the Assessing Officer had made three additions to the income of the assessee:-
i) Addition on account of entertainment subsidy which the assessee had claimed to be a capital receipt which Assessment year 2006-07 the Assessing Officer held that it should be reduced from the cost of assets and depreciation should not be allowed. ii) Disallowance of Rs. 70,08,183/- in respect of ESOP and ESPS Schemes as a contingent liability by the Assessing Officer as against the assessee treating it as revenue expenditure. iii) Disallowance of Rs. 34,53,218/- u/s 14A of the Act.
2.1 On appeal, the Ld. CIT (A) enhanced the income by treating the entire entertainment subsidy as a revenue receipt and an addition of Rs. 2,25,41,765/- was made to the income of the assessee. The Ld. CIT (A) further confirmed the addition on account of ESOP and ESPS by treating the same as capital expenditure and a notional contingent liability. The Ld. CIT (A) also confirmed the disallowance of Rs.34,53,218/- on account of disallowance u/s 14A.
2.2 On the assessee approaching the ITAT, the ITAT held that entertainment subsidy was a capital and not a revenue receipt.
The ITAT also held that ESOP could not be allowed as a deduction without actually paying it to the employees and the issue of Assessment year 2006-07 disallowance u/s 14A was set aside to the file of the Assessing Officer.
2.3 Subsequently, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) and levied penalty of Rs. 31,34,639/- on account of disallowance of depreciation of Rs.23,04,466/- on the amount of entertainment subsidy and on Rs. 70,08,183/- disallowed on account of ESOP expenditure.
2.4 On appeal before the Ld. CIT (A) against the penalty, the Ld. CIT (A) held that since the ITAT had deleted the addition on account of entertainment subsidy, by holding it as a capital receipt, no penalty was leviable on the amount. On the issue of disallowance on ESOP, the Ld. CIT(A) noted that although the addition had been confirmed by the ITAT in assessee’s own case, the ITAT Bangalore Special Bench had deleted a similar disallowance in the case of Biocon Ltd. Vs DCIT reported in (2013) 35 Taxmann.com 335. The Ld. CIT (A) also noted that the assessee had furnished all particulars during the course of assessment proceedings and that the Assessing Officer had nowhere stated that the particulars furnished were incorrect or inaccurate. The Ld. CIT (A) also noted that since two different Benches of the ITAT had held two different views on the Assessment year 2006-07 deductibility of ESOP expenses as revenue expenditure, the issue was a debatable one and, therefore, no penalty was leviable on that count also.
2.5 Now, the department has approached the ITAT and has challenged the deletion of penalty by the Ld. CIT (A).
The Ld. Sr. DR, while supporting the order of the Assessing Officer, vehemently argued that penalty was leviable on both the issues.
In response, the Ld. AR placed reliance on the order of the Ld. CIT (A) and submitted that the Ld. CIT (A) had adjudicated the issue keeping in mind the totality of facts and the settled judicial precedents and submitted that the order of the Ld. CIT (A) be upheld.
We have heard the rival submissions and perused the material available on record. As far as penalty on addition of Rs. 23,04,466/- in respect of entertainment subsidy is concerned, the ITAT has deleted the entire quantum in the quantum appeal and thus, we agree with the Ld. CIT(A) that no penalty is leviable on the same as quantum addition itself has been deleted.
5.1 As far as the second issue relating to disallowance of Rs.70,08,183/- on account of ESOP expenditure is concerned, it Assessment year 2006-07 is undisputed that accounts of the assessee were duly audited, tax audit report, computation of income and income tax return were not at variance and relevant details were filed by the assessee during the course of assessment proceedings against which the Assessing Officer has not made any adverse observation. It is also undisputed that the amount of expenditure claimed on ESOP was duly reflected in the P&L account and also in the notes to accounts. It is also undisputed that the Chennai Bench of the ITAT and Bangalore Special Bench of the ITAT have taken a view that such expenditure was a deductible expenditure whereas ITAT Delhi Bench in the assessee’s case and in other cases has held that the same was not a deductible expenditure.
Thus, although the ITAT Delhi has held the quantum issue against the assessee in the assessee’s own case, the fact remains that the issue is a debatable legal issue and, further, no instance of concealment of income or furnishing of inaccurate particulars of income has been pointed out either by the Assessing Officer or by the Ld. Sr. DR during the course of proceedings before us.
Therefore, we are of the considered opinion that penalty will not be leviable on this issue as mere making of a claim, which is not otherwise acceptable in law, will not tantamount to concealment Assessment year 2006-07 of income or furnishing inaccurate particulars, especially when the bona fides of the assessee are not under doubt.
5.2 The Hon’ble Apex Court has held that the findings recorded in the assessment proceedings may constitute evidence in the course of penalty proceedings but they cannot be regarded as conclusive. In the instant appeals, it cannot be said that the assessee had withheld any relevant information regarding its receipts and income from the AO. With regard to the provisions of section 271 (1) (c) of the Act pertaining to penalty, the Hon’ble Apex court has laid down that making of a claim by the assessee which is not sustainable will not amount to furnishing inaccurate particulars. In the case of CIT versus Reliance Petroproducts (P)
Ltd reported in 322 ITR 158 (SC), the Hon’ble Apex Court held as follows –
“A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The present is not a case of concealment of income. That is not the case of the revenue either. However, the Ld. counsel for the revenue suggested that by making inaccurate claim for the expenditure on interest, the assessee has furnished Assessment year 2006-07 inaccurate particulars of the income. As per Law Lexicon, the meaning of the word “particular” is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word “particulars” used in the section 271 (1) (c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Ld. counsel argued that “submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income”. We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT versus Atul Mohan Bindal (2009) 9 SCC 589, where this court was considering the same provision, the court observed that the assessing officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This court referred to another decision of this court in Union of India versus Dharamendra Textile Processors (2008) 13 SCC 369 as also, Assessment year 2006-07 the decision in Union of India versus Rajasthan Spg. & Wvg. Mills (2009) 13 SCC 448 and reiterated in paragraph 13 that (page 13 of 317 ITR):
“13. It goes without saying that for applicability of section 271
(1) (c), conditions stated therein must exist.”
5.3 Therefore, we find no reason to interfere with the order of the Ld. CIT (A) on this issue also and we uphold the same.
In the result, the appeal filed by the department is dismissed.
Order pronounced in the Open Court on 1/11/ 2017.