BUILDBYTE.COM (INDIA) P. LTD,MUMBAI vs. ACIT CEN CIR 36, MUMBAI

This appeal has been filed by the assessee against the order of the CIT(A)-41, Mumbai dated 30.07.2013 for A.Y. 2002-03.

This appeal is barred by limitation of 30 days. The assessee has filed an application for condonation of dealt of 30 days in filing the appeal along with an affidavit. After hearing heard both the parties we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the permissible time. We, therefore, condone the delay in filing the appeal.

The only issue involved in this appeal relates to the levy of penalty under section 271(1)(c) of Income Tax Act amounting to `98,26,441/-.

The brief facts of the case are that the assessee is engaged in the business of website and software development and other information technology related activities. The assessee was incorporated on 27.09.2000

We have heard the rival submissions and carefully considered the same. We noted that in this case the AO initiated penalty for furnishing inaccurate particulars of income which means that the AO has not applied Explanation 1 so that the deeming provision for concealment of particulars of income could have been applied. It is a case where the onus is on the AO to prove that the assessee has furnished inaccurate particulars of income. Now the question before us is whether claiming a deduction of a sum of `2,75,25,044/- on account of software development as revenue expenditure which was subsequently held to be capital expenditure can be M/s. Buildbyte.com (India) P. Ltd. regarded as furnishing of inaccurate particulars so that the assessee can be made liable for levying penalty under section 271(1)(c). The learned A.R. before us drawn our attention towards the decision of the Hon'ble Delhi High Court in the case of CIT vs. Amway India Enterprises 22 taxmann.com 22 (Del). From the said decision it is apparent that expenditure incurred by the assessee on purchase of software application and payment of consideration for acquiring licences to use those applications will be revenue expenditure. In view of the decision of the Hon'ble Delhi High Court we find force in the submission of the learned A.R. that the expenditure incurred by the assessee for software can be regarded to be revenue expenditure. Therefore, the claim made by the assessee as revenue expenditure was a bonafide claim. The assessee has declared all the particulars while making the claim in the return. It cannot be said that the assessee has not furnished all the details whatever was required for making the claim. We noted that the case of the assessee is duly covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroprodcuts Pvt. Ltd. (2010) 332 ITR 158 wherein the court held that “Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself, would not attract the penalty under section 271(1)(c)”. The Hon'ble Supreme Court in the said decision has clearly laid down that by any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In case of the assessee we noted that the assessee has made a claim and has furnished all the details in respect of the expenses which has been claimed as revenue expenditure but the Revenue treated that to be a capital expenditure which means the Revenue did not accept the claim made by the assessee. Merely the Revenue has disallowed the claim made by the assessee by itself will not mean that the assessee had furnished inaccurate particulars of income. On this basis, in our view, no penalty under section 271(1)(c) can be levied. We, therefore, delete the penalty levied by the AO under section 271(1)(c).

We also noted that this is a case where the AO while levying penalty did not bring out any specific charge even though as per the provisions of Section 271(1)(c) both the charges of furnishing inaccurate particulars of income or concealment of income are different. Explanation 1 is applicable in the case of concealment of income. In this case we noted that the AO has initiated penalty proceedings for furnishing inaccurate particulars of income while penalty has been levied by the AO for concealing particulars of income and filing inaccurate particulars of income. This means the AO has levied penalty for both the charges. There cannot be a case where penalty can be levied for both the charges. The word used in section 271(1)(c) is ‘or’ in between the two charges. The Hon'ble Jurisdictional High Court in the case of CIT vs. Samson Perinchery 392 ITR 4 held as under: -

In the result, the appeal filed by the assessee is allowed.