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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI B.P.JAIN & SHRI SUDHANSHU SRIVASTAVA
This appeal has been preferred by the assessee against the order passed by the ld. CIT(A)-XXVIII, New Delhi for assessment year 2008-09 wherein vide order dated 6th May, 2014, the ld. Commissioner of Income Tax(A) has confirmed the penalty of Rs.4,52,648/- imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter called 'the Act').
Assessment year 2008-09 2. Brief facts of the case are that the assessee is a firm of Advocates specialising in Intellectual Property Rights Laws and has its principal place of business in the NCR region of Delhi and Noida. In respect of the assessment year under consideration, the return of income was filed at Rs. 5,73,75,030/- which was assessed at Rs. 6,19,93,720/- and subsequently revised u/s 154 of the Income Tax Act, 1961 (hereinafter called 'the Act') to Rs. 6,22,28,729/-. The difference between the returned and assessed income arose on account of certain disallowances out of expenses against which the assessee filed appeal before the ld. Commissioner of Income Tax(A). Thereafter, both the assessee as well as the Department, filed second appeals before ITAT wherein the ITAT partly allowed the assessee’s appeal and dismissed the Department’s appeal. Amongst various disallowances made by the Assessing Officer in the assessment order, one disallowance related to the treatment of expenditure of Rs. 15,66,721/- towards cost of installation of a new transformer replacing the existing transformer at the premises in Noida taken on lease by the assessee. It arose on account of treatment of the said amount while computing the profit for the year. The assessee claimed the entire expenses of Rs. 15,66,721/- as a business Assessment year 2008-09 expenditure being revenue in nature whereas the Assessing Officer was of the opinion that the expenditure was capital in nature and, therefore, after allowing Rs. 2,35,008/- as depreciation, the Assessing Officer added back the balance of Rs.13,31,713/- to the income of the assessee. Subsequently, penalty of Rs. 4,52,648 was levied u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter called 'the Act') on this amount. This penalty was confirmed by the ld. Commissioner of Income Tax(A) and now the assessee has approached the ITAT and has challenged the confirmation of penalty by raising the following grounds of appeal:-
2.1 The following grounds have been raised by the assessee:- “1. That on the facts and circumstances of the case the learned CIT (Appeal) erred in confirming the penalty order in respect of addition of Rs.13,31,713 made to the returned income merely because the assessee's claim that the cost of the transformer replaced by it was a revenue expenditure whereas the Department held it to be a capital expense and the same was upheld in appeal.
2. That the learned CIT (Appeal) erred in not holding that merely because the claim of the assessee was upheld against the assessee in appeals cannot pre- suppose that assessee concealed or filed inaccurate particulars of its income and more so when there have been instances in the past where replacement of Assessment year 2008-09 transformer and similar machinery has been held to be a revenue expense.
3. That the order of the learned authorities below being contrary to the facts and circumstances of the case and in law the appeal be allowed.”
3. The Ld. AR submitted that no penalty was leviable on a mere disallowance out of expenses claimed, particularly in view of the fact that the disallowance had arisen on account of difference in opinion on the nature of the transaction as taken by the assessee and that taken by the Department. It was submitted that the Department had allowed depreciation after treating the expenditure as capital expenditure and it proved that the Department had accepted the transaction as being a genuine one incurred wholly and exclusively for the purposes of profession.
Thus, it was not a case of concealment of any income nor was it a case of furnishing inaccurate particulars of income. It was submitted that the Assessing Officer has not pointed out anywhere in the order that any information in relation to the expense account was inaccurately stated. It was also stated that no penalty for concealment of income was leviable merely because of difference in opinion as regards treatment of expenses as being of capital or revenue in nature. Ld. AR also placed reliance on numerous case laws to support his proposition that penalty u/s 4 Assessment year 2008-09 271(1)(c) of the Act was not imposable for making a claim which was not accepted by the revenue, especially when the relevant details were before the Assessing Officer and duly disclosed in the return of income.
Ld. Departmental Representative placed reliance on the judgment of the Hon'ble Delhi High Court in the case of reported in 327 ITR 510(Del) and submitted that where the assessee had made a claim which was not only incorrect in law but was also wholly without any basis and further where the explanation furnished by the assessee for making such a claim was not bona fide, it would be difficult to say that the assessee would not be liable to penalty u/s 271(1)(c) of the Act. Ld. Departmental Representative submitted that the Hon'ble Delhi High Court has held in Zoom Communication Pvt. Ltd. (supra) that where a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, not levying penalty would give licence to unscrupulous assessees to make wholly untenable and unsustainable claims. It was submitted that penalties have a deterrent effect and, therefore, the imposition cannot be done away with entirely. Ld. Departmental Assessment year 2008-09 Representative also read out extensively from the order of the ld. Commissioner of Income Tax(A) and submitted that both the Assessing Officer as well as the ld. Commissioner of Income Tax(A) had reached a concurrent finding that the penalty was imposable on the assessee.
We have heard the rival submissions and perused the material available on record. The facts of the case are not disputed. It is a settled law that assessment and penalty proceedings are distinct and although the findings recorded in the assessment proceedings may constitute evidence in the course of penalty proceedings, they cannot be regarded as conclusive. This is the law enunciated by the Hon’ble Apex Court in the case of Commissioner of Income Tax vs Anwar Ali reported in 76 ITR 696 (S.C.), Commissioner of Income Tax vs Khoday Eswarsa & Sons (1972) 83 ITR 369 (S.C.), Anantharam Veerasinghaiah & Co. Vs C.I.T. reported in 123 ITR 457 (SC). In the case of Commissioner of Income Tax vs Bacardi Martini India Ltd. reported in 288 ITR 585 (Del), the Hon'ble Delhi High Court held that merely because there was a difference of opinion between the assessee and the Assessing Officer, it cannot be said that the assessee had the intention to conceal his income.
Assessment year 2008-09 5.1 Here in the present appeal before us, it is not a case that the assessee had not been able to explain any expenditure or had failed to give any details and the Assessing Officer had added the same to the income. It is only a case where there is a difference of opinion as to a particular expenditure being revenue in nature or capital in nature. It is evident from the records that the assessee had given all particulars of expenditure and income and had disclosed all facts to the Assessing Officer. It is not the case where some new facts were discovered during the course of assessment proceedings or that the Assessing Officer had dug out some information which was not furnished by the assessee. The Mumbai Bench of ITAT in the case of Sadhana Textile Mills P.
Ltd. in vide order dated 22.10.2012 had, on an identical issue, held that the assessee has a right to claim a particular expenditure as revenue expenditure though the same may be disallowed by the Assessing Officer in assessment proceedings. The Mumbai Bench of the ITAT went on to hold that such claim made by the assessee supported by the documentary evidences does not invite invocation of provisions of section 271(1)(c) of the Act for filing inaccurate particulars/concealing the particulars of income. The Hon’ble Apex Court in the case of Assessment year 2008-09 Commissioner of Income Tax vs Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158 (SC) has also held that mere making of claim which is unsustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. We are of the considered opinion that the reliance of the Department on the judgment of the Hon'ble Delhi High Court in the case Zoom Communication (P) Ltd. does not come to the aid of the Department in this particular case for the reason that the Hon'ble Delhi High Court has also duly considered the judgment of the Hon'ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd. (supra) in this judgment and has opined that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of income of the assessee but it cannot be disputed that the claim made by the assessee needs to be bona fide. The Hon'ble Delhi High Court has further held that if the claim, besides being incorrect in law, is mala fide, Explanation (1) to section 271(1)(c) would come into play and work to the disadvantage of the assessee. However, in the present appeal before us, there is no charge of any mala fide act against the assessee and the penalty has been imposed only on the basis of difference in opinion on the deductibility of a Assessment year 2008-09 particular item of expenditure. Therefore, respectfully following the Hon'ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd. (supra), we are unable to concur with the findings of both the lower authorities. We accordingly set aside the order of the ld. Commissioner of Income Tax(A) and direct the Assessing Officer to delete the penalty.
In the result, the appeal of the assessee stands allowed.
The order is pronounced in the open court on 31st October, 2017.