ALFA DISTILLIERIES P.LTD,MUMBAI vs. ITO 2(1)(1), MUMBAI

This is an appeal filed by the assessee against the order of CIT(A) for the assessment year 2009-10 in the matter of penalty imposed u/s.271(1)(c) of the IT Act.

Rival contentions have been heard and record perused.

Facts in brief are that assessee is engaged in manufacturing of Indian made foreign liquor. During the course of scrutiny assessment, AO made disallowance of Rs.22,74,300/- on account of license fee. For the disallowance so made, AO also levied penalty u/s.271(1)( c) against which assessee is in further appeal before us.

During the year the Assessee had filed its Return of Income on 30.09.2009 declaring total loss at Rs.19,94,583/-. Assessing Officer passed an order observing that the expenditure incurred on renewal of license was not allowable in view of Sec. 43B(a) and also not be allowable as business expenses uls.37(1) of the Act. Thereafter he initiated penalty proceedings for furnishing inaccurate particulars.

After disallowing the claim, the AO also levied penalty u/s.271(1)( c) for the disallowance of license fee. During the Penalty Proceedings, the Assessee had filed following details:  Audited Accounts  Notice dtd. 5/8/2011 asking details of License Fees along with Ledger during assessment proceedings.

By the impugned order CIT(A) confirmed the action of AO against which assessee is in further appeal before us.

We have considered the rival contentions and found from record that the Assessee has neither concealed nor filed any inaccurate particulars of income, levy of penalty was not justified. The Assessee had filed its application for renewal of its licence. This licence fees is payable on yearly basis and valid for one year. Similar disallowance was made by department A.Y. 2006 - 2007. However, on appeal the Hon'ble ITAT allowed the Assessee's Claim. The Assessee has not filed appeal mainly because the assessed income was less and tax liability was less payable. The PLL license Fees and RSII debited to the profit and loss account but it was not paid since the matter is in disputes with the Bombay High Court and with State Government. These Licence Fees are not in the nature of expenses specified u/s. 43B(a) since this is a liability arising due to application of renewal of licence. I is not in the nature of any duties or royalty or taxes which has become due to its usage during the year concerned. The nomenclature applied the amount for which the provision was made "fee" and not a tax and therefore the provision of section 43B, 4 Alfa Distilleries Pvt. Ltd., in the year in question, were not attracted. Merely because there is a litigation pending in High Court wherein stay was granted, and necessary expenses incurred to keep alive the business assets cannot be disallowed and cannot be ground for levy of penalty on the same.

From the record we found that the claim made by the assessee was based on sound legal contention remains a claim and cannot be equated with supplying inaccurate particulars of income or concealing particulars of income, therefore, the provisions of s. 271(1)(c) is not applied. From the record we also found that in A.Y.2011-12 on the same addition the A.O. has deleted the penalty.

We also found that from A.Y. 2012 - 2013, the Assessee suo moto stopped making provisions for License Fees in the books of accounts. Therefore, the disallowance of license fees and penalty on the same not arose.

Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) held that making an Incorrect claim in law cannot tantamount to furnishing inaccurate particulars. There is no' concealment or furnishing of inaccurate particulars within Sec. 271(1)(c) & its Explanations. Explanations given by Assessee are bonafide based on documentary evidences produced at the time of assessment proceedings and the explanations of the Assessee are not found false.

In view of above discussion, we do not find any justification for imposing penalty u/s.271(1)(c).