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Income Tax Appellate Tribunal, DELHI BENCHES ‘A’ BENCH DELHI
Before: SHRI S.V. MEHROTRA & SHRI SUDHANSHU SRIVASTAVA
order passed by the Ld. CIT(A)-XXXI , New Delhi vide order dated 28.2.2013 deleting the penalty imposed u/s 271(1)(c) of the Income Tax Act, 1961 for assessment year 2002-03.
The facts, in brief, are that the assessee company had filed its return declaring a total income of Rs.91,76,558/-.
Subsequently, a revised return was filed declaring total income of 1 Assessment year 2002-03 Rs. 96,24,702/-. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (“The Act”) at a total income of Rs. 4,28,29,480/- against which the assessee preferred an appeal before the Ld. CIT(A) who partly allowed the appeal of the company.
2.1 Aggrieved by the order of the Ld. CIT (A), the assessee as well as the department, both preferred an appeal before the ITAT, New Delhi Bench wherein the ITAT dismissed the appeal of the assessee on the issue of treatment of expenditure of consultation/development fee as revenue expenditure and partly allowed the department’s appeal on allowance of deduction u/s 80IB(10) of the Act. The ITAT directed that the deduction u/s 80IB(10) in respect of Avantika & Aakriti projects at Ghaziabad be allowed as per the directions given by the ITAT ‘A’ Bench vide order dated 12.06.2009 whereas consultation/development fee was held as capital expenditure incurred for starting of new line of business. Further, the ITAT vide order dated 12.06.2009 partly allowed the appeal of the assessee filed against order u/s 263 of the Act. The appeal effect of the order of the ITAT was given and deduction u/s 80IB of the Act was substantially allowed amounting to Rs. 93,27,958/- against deduction of Assessment year 2002-03 claimed amount of Rs. 98,40,391/-. Thus, an amount of Rs. 7,44,403/- was held as inadmissible for the purpose of deduction u/s 80IB(10) of the Act. Further, in respect of consultation/development fee, an amount of Rs. 931,114/- was allowed as deduction being 1/5th of the total expenditure of Rs.46,55,570/- held to be capital expenditure. The Assessing Officer, vide order dated 31st March, 2012 imposed penalty u/s 271(1)( c) of the Act amounting to Rs. 14,35,000/- on the inadmissible amount of deduction claimed u/s 80IB(10) and consultation/development fee.
2.2 The assessee preferred an appeal before the Ld. CIT (A) against the imposition of penalty who was pleased to delete the entire penalty. Now, the department has approached the ITAT and has raised the following grounds of appeal:-
“1. The order of the ld. CIT (A) is not correct in law and facts. 2. On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in deleting the penalty of Rs. 14,35,000/- imposed by the Assessing Officer u/s 271(1)( c) of the Income Tax Act.”
Ld. DR submitted that the assessee had furnished inaccurate particulars of income and had claimed excess 3 Assessment year 2002-03 deduction u/s 80IB (10) of the Act in respect of six units of Avantika & Aakriti projects at Ghaziabad. It was submitted that the claim of deduction u/s 80IB was not purely on legal issue but involved the ascertainment of facts as to the eligibility of the assessee to claim deduction. Ld. DR submitted that the assessee had claimed excess deduction u/s 80-IB of the Act, 1961 for which the assessee is liable to penalty u/s 271(1)( c) of the Act which had wrongly been deleted by the Ld. CIT(A).
3.1 It was further submitted that the assessee had claimed consultation/development fee amounting to Rs. 46,55,570/- as revenue expenditure which was held by the Assessing Officer to be capital expenditure which was upheld by the Ld. CIT(A) and also by the ITAT on further appeal. Thus, the assessee had furnished inaccurate particulars in treating the consultation/development fee amounting to Rs.46,55,570/- as revenue expenditure whereas the same was capital expenditure and on this issue also, the penalty u/s 271(1)( c) was rightly imposed but was deleted by the Ld. CIT(A) without correct appreciation of facts. It was submitted that the order of the Ld. CIT (A) be set aside and that of the Assessing Officer restored.
Assessment year 2002-03 4. Ld. AR, on the other hand, placed extensive reliance on the order of the Ld. CIT(A) and submitted that the Assessing Officer had not recorded his satisfaction before the initiation of penalty proceedings and therefore, the penalty order was bad in law. It was further submitted that the penalty u/s 271(1)( c) was imposable only if the assessee has furnished inaccurate particulars of income or concealed any particulars of such income whereas in the assessee’s case, neither any inaccurate particulars have been furnished nor any income has been concealed. It was further submitted that the claim of expenses in respect of consultation/development fee as well as deduction u/s 80IB (10) were made in a transparent manner without concealing any material fact and by giving all necessary disclosures and details in the documents accompanying the ITR. It was further submitted that it is not the department’s case that any material fact had been withheld or concealed by the assessee. It was further submitted that the question as to whether the expenditure incurred on consultation/development fee was revenue or capital in nature was a debatable issue and penalty u/s 271(1)( c) cannot be imposed on debatable issues. It was further submitted that the Assessing Officer had made an Assessment year 2002-03 addition to income only on the basis of material and information submitted by the assessee and since the claim raised by the assessee was bona fide, mere rejection of the same would not empower the authorities to impose a penalty u/s 271(1)( c). It was submitted that in the light of facts, the order deleting the penalty be upheld.
We have heard the rival submissions and have perused the relevant material placed on record. A perusal of the impugned order shows that the Ld. CIT (A) has discussed the issue in Para 4.1 to 4.3 of the impugned order which are being reproduced hereunder for a ready reference:-
“ 4.1 I have considered the submissions of the AR, the penalty order and the assessment order dated 30.03.2005. It is seen that the Assessing Officer initiated penalty proceedings u/s 271 (1)(c) in the assessment order passed u/s 143(3) on 30-03-2005. In the said order, however, the AO has failed to record his satisfaction for initiating the proceedings u/s 271 (1 )(c). He has only written at the end of the computation income that “Penalty proceedings u/s 27l(1)(c) is initiated separately'. Hon’ble High Court of Delhi has held in many cases that the penalty proceedings are void if the AO fails to record his satisfaction about the concealment or furnishing inaccurate particulars of income Assessment year 2002-03 in the assessment order itself. In CIT vs. Edwards Life Sciences India Pvt. Ltd. (2008) 166 TAXMANN 489 (Del), the Hon’ble High Court has held as under:-
“A.O. in the assessment order having simply mentioned “Penalty Proceedings u/s 271 (1)(c) have been initiated”. It cannot be said that satisfaction of AO about the concealment or furnishing inaccurate particulars of income was discernable from the assessment order, hence penalty levied u/s 27l(l)(c) was invalid”.
4.2 Assessing authority is required to form his opinion and record his satisfaction before initiating penalty proceedings u/s 271 (1)(c). In the order there is no whisper of the AO having come to the conclusion that .the disallowances made called for initiation of the penalty proceedings. Therefore, respectfully following the decision of the jurisdictional High Court (Supra), I hereby delete the penalty levied.
4.3 In the result the appeal is allowed.”
5.1 This finding by the Ld. CIT(A) could not be controverted by the Ld. DR before us. Further, the assessee’s case is squarely covered by the judgment of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton & Ginning Factory reported 359 ITR 565 (Kar) and also another judgment of the Hon’ble Karnataka High Court in the case of CIT vs SSA’s Emerald Meadows reported in 73 Taxmann.com 241 (Kar). 7 Assessment year 2002-03 Therefore, we find no reason to interfere with the findings of the Ld. CIT (A) on this issue and while upholding his adjudication, we dismiss the appeal of the department.
In the result, the appeal filed by the department stands dismissed.
Order pronounced in the open court on11th May, 2017.