ELECTROPNEUMATICS & HYDRAULICS (INDIA) P.LTD,PUNE vs. DCIT CIR 8(1), MUMBAI

This is an appeal filed by the assessee against the order of CIT(A) for the assessment year 2010-11 in the matter of imposition of penalty u/s.271(1)(c) of the IT Act.

Rival contentions have been heard and record perused.

During the course of scrutiny assessment AO made disallowance of Rs.7,66,620/- on account of franking charges paid on term loan treated as the capital expenditure. Disallowance of Rs.1,39,392/- on account of foreign exchange loss on import of machinery and disallowance of Rs.75,000/- on account of payment of bills pertaining to earlier years.

We have considered rival contentions in respect of franking expenses, we found that expenditure was incurred for obtaining the bank loan. Merely, because AO has considered the expenses as capital in nature, same does not amount to furnishing of any inadequate particulars of income, therefore, not liable to penalty u/s. 271(1) ( c). Similarly, disallowing the expenditure genuinely incurred for the purpose of business merely on the plea of prior period expenses will not attract penalty u/s.271(1)( c).From the record we found that full details regarding franking charges, foreign exchange loss were filed before the lower authorities. There was no concealment of any particulars of income. Merely disallowance of claim does not amount to furnishing of inadequate particulars of income nor concealment of income.

The Hon’ble Supreme Court in the case of Reliance Petroproducts ltd. (322 ITR 158) has held as under :- Held: “A glance of provision of section 271(1)(c ) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the 3 M/s. Electropneumatics & Hydraulics (India) Pvt. Ltd., interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. Therefore, it must be shown that the conditions under section 271(1)(c ) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. 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). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. Therefore, the appeal filed by the revenue had no merits and was to be dismissed.”

In the result, appeal of the assessee is allowed.