SAKAL PAPER LTD.,PUNE vs. DCIT, CIR.-6, PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

2.1 Assessee is a company stated to be engaged in the business of Printing and Publishing of newspapers and periodicals. Assessee filed its return of income for A.Y. 2004-05 on 30.10.2004 declaring total income of Rs.25,92,74,910/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order

dt.30.08.2006 and the total income was determined at

Rs.28,54,84,860/- inter-alia by disallowing legal expenses of

Rs.90,70,080/-, expenses towards repairs and maintenance of

Rs.1,08,89,864/- and expenses towards publicity expenses

Rs.62,50,000/-. On the disallowance of legal expenses

(Rs.90,70,080/-) and expenses of repairs and maintenance

(Rs.1,8,89,864/-), AO vide order dt.31.03.2009 levied penalty u/s

271(1)(c) of the Act at Rs.71,60,630/-. Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who vide order

dt.17.12.2009 (in appeal No.PN/CIT(A)-III/Cir.6/430/09-10)

dismissed the appeal of the assessee. Aggrieved by the order of

Ld.CIT(A), assessee is now in appeal before us and has raised the

following grounds :

“On the facts and under the circumstances of the case the learned Assessing Officer and CIT Appeals erred in : 1. holding that the assessee concealed the income and /or concealed the particulars of income attracting provisions of Sec. 271(1)( c) of the Income Tax Act, 1961 and levying the penalty of Rs.71,60,630/-. This action being bad in law it is prayed that the penalty of Rs.71,60,630/- be deleted. 2. invoking the provisions of Sec. 271(1) ( c) and levying penalty of Rs. 71,60,630/-. The action being bad in law it is submitted that that the penalty be deleted. 3. not accepting and / or not considering and / or holding that the arguments the explanation given submissions made, and arguments advanced by the assesee are not convincing and as such are not acceptable and thereby levying penalty of Rs. 71,60,630/- u/s 271(1) (c). It is submitted that the explanations given by the assesee be considered and accepted and the penalty be deleted. 4. holding that the disallowance of legal expenses of Rs.90,70,080/-- on the ground that they are not incurred wholly and exclusively for the purpose of business, as furnishing of inaccurate particulars of income and / or concealment of income attracting provisions of Sec. 271(1)( c) and thereby levying penalty U/s 271(1)(c). The action being bad in law It is submitted that the penalty levied be deleted.

assessee has raised several ground but the sole controversy is with

respect to levy of penalty on the expenses disallowed by AO.

repairs and maintenance the AO disallowed Rs.1,08,89,864/- as he

was of the view that the expenditure was on capital account and

therefore not allowable as revenue expenditure. He submitted that

against the order of AO, whereby the expenses were disallowed, the

matter was carried before Tribunal. He submitted that the Co-

ordinate Bench of the Tribunal while deciding the appeal in ITA

Nos.724 and 736/PUN/2008 order dt.13.06.2014 has decided the

issue in favour of the assessee. He placed on record the copy of the

aforesaid decision and pointed to the relevant findings of the Tribunal.

He therefore submitted that since the addition itself has been deleted

and the matter has been decided in favour of the assessee, no penalty

on such addition survives. With respect to the penalty on the

disallowance of legal expenses, Ld.A.R., submitted that the expenses

were incurred on suits filed against the assessee relating to share

transfer. The submission of the assessee that the expenditure was

incurred wholly and exclusively for the purpose of business was not

found acceptable to the AO. Ld.A.R. further submitted that the

allowability of legal expenses is a debatable issue in view of the fact

that against the quantum disallowance made and confirmed by the

Appellate Authorities, assessee has filed appeal before the Hon’ble

Bombay High Court and the Hon’ble Bombay High Court has admitted

the appeal of assessee vide appeal No.2403 of 2011. He placed on

record the copy of the aforesaid order of Hon’ble High Court at page

18 of the paper book. He therefore submitted that when the issue of

legal expenses is debatable in nature, the question of penalty on such

debatable addition does not arise. He therefore submitted that the

penalty be deleted. Ld.D.R. on the other hand, did not controvert the

submissions made by Ld.A.R. but however supported the order of

lower authorities.

on record. The issue in the present case is with respect to levy of

penalty u/s 271(1)(c) of the Act on the addition of Rs.1,08,89,864/-

on account of repairs and maintenance and Rs.90,70,080/- on

account of legal expenses. As far as the issue of disallowance of

repairs and maintenance of Rs.1,08,89,864/- is concerned, we find

that the quantum issue has been decided by the Co-ordinate Bench of

the Tribunal in favour of the assessee. Once the quantum issue has

been decided in favour of the assessee, the penalty on such addition

does not survive. As far as the levy of penalty on disallowance of legal

expenses is concerned, we find that the disallowance made by the AO

was upheld by the Appellate Authorities. Against the order of

Appellate Authorities, assessee carried the matter before Hon’ble

Bombay High Court and the Hon’ble Bombay High Court vide order

dt.04.03.2013 in ITA No.2403 of 2011 has admitted the issue as

being a substantial question of law. When the Hon’ble High Court has admitted the issue being as substantial question of law, then it becomes apparent that the addition is certainly debatable and in such a situation, penalty cannot be levied u/s 271(1)(c) of the Act on such debatable addition and for this proposition, we find support by the decision of Hon’ble Bombay High Court in the case of CIT Vs. Nayan Builders and Developers reported in 368 ITR 722 (Bom). In view of the aforesaid facts, we direct the deletion of penalty on both the issues. Thus, the grounds of the assessee are allowed.

Order pronounced on 17th day of January, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 17th January, 2018. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-III, Pune. CIT-III, Pune. 4. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, ITAT, “B” Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER

// True Copy //

व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.