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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM (A.Y:2005-06) D.C.I.T, Cir-3(1)(1), Room Vs. M/s. Aurovision India Pvt. 6th No.607, Floor, Aayakar Ltd., 41/12/, Atlanta, Bhavan, Mumbai 400 020 Nariman Point, Mumbai - 21 PAN: AABCA 1773A Appellant .. Respondent Appellant by Shri Manoj Kumar, Sr.DR Respondent by Shri Vinod G Rana, AR Date of hearing 07-07-2016 Date of pronouncement 10 - 08-2016 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the revenue is arising out of order of CIT (A) in Appeal No. IT- 64/13-14/220/1495 dated 14-11-2014. Assessment was framed by DCIT, Cir-3(1), Mumbai for the assessment year 2005-06 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 28-11-2007. Penalty under dispute was levied by DCIT-3(1), Mumbai u/s. 271(1) (c) of the Act vide his order 19-03-2013.
The only issue in this appeal of revenue is against the order of the CIT (A) deleting the levy of penalty u/s. 271(1) ( c) of the Act for furnishing of inaccurate particulars of income by claiming excessive expenses. For this, the revenue has raised the following ground:-
“1. Whether on the facts and circumstances of the case and in law, the ld. CIT (A) erred in deleting the penalty levied by the Assessing officer of rs.17,97,368/- u/s. 271(1) ( c) of the I.T Act, 1961 without appreciating the fact that the assessee filed inaccurate particulars of income by claiming excessive expenses, which were disallowed by the AO and upheld by the ld. CIT(A). “ 3. Briefly stated the facts of the case are that the assessee is engaged in the business of software development and IT enables services. They are also engaged in the development of GIS oriented services. During the year under consideration the assessee developed a project in Pune division showing work-in-progress. This was valued on the basis of proportionate allocation on various expenses. Accordingly, they
35% of GIS staff salary. The AO disallowed the expenses to the tune of Rs.50,10,085/- on account of insulation of expenses by lesser capitalization. The assessee accepted the addition and no further appeal was filed before the Tribunal. The AO initiated the penalty proceedings u/s. 271(1) (c) of the Act and finally levied the penalty for furnishing of inaccurate particulars of income of Rs.17,97,368/- u/s. 271(1) (c) of the Act. Aggrieved, the assessee preferred appeal before the CIT (A), who ultimately deleted the impugned penalty levied by the AO. Aggrieved, now the revenue is in appeal before the Tribunal.
I have heard the rival contentions and gone through the facts and circumstances of the case. I find that before the CIT (A) both the grounds raised by the assessee relate to the levy of penalty of Rs.17,97,368/- u/s. 271(1)( c). The AO imposed this penalty in respect of the quantum of addition of Rs.50,10,085/- that was made by capitalizing the cost on account of salary and other expenses related to its GIS division at higher value and thereby reducing the expenses ( salary and other expenses) as debited in the P & L account. The facts of the case, as per the detailed submissions made by the assessee, are that the assessee company is engaged in the business of software development and IT enable services in the initial years including the year under consideration. The assessee company was having three divisions (1) GIS new software development division, (2) in house utility research and (3) outside solution division. In accordance with the relevant accounting standards, the expenses incurred in development of GIS software was to be capitalized. The total expenses on account of salary and other expenses of all the said three divisions was amounted to Rs.70,05,542/- and Rs.58,53,633/- respectively, out of which total salary expenses of Rs.21,78,946/- was related to the personnel of GIS software division and that was accordingly capitalized. In the initial year, the salary expenses of GIS software division varied from 31% to 35% for capitalization. During the assessment proceedings, however, the AO formed the view that assessee had deliberately capitalized a narrow proportion of the total salary expenses. The AO did not find any justification for capitalization of expenses at 35% and estimated the expenses for capitalization at 90% of the total salary and 50% of other expenses. It resulted in reducing the expenses debited in the P & L account by Rs.50,10,085/- and corresponding increase in the WIP. The addition so made of Rs.50,10,085/- was later confirmed by the CIT. The AO imposed the penalty u/s. 271(1) (c) thereon.
I have perused the assessment order as well as the quantum appellate order. I find that the addition has been made by estimating the expenses on ad-hoc basis only. If the AO arrived at the conclusion that estimate taken by the assessee at 35% for capitalizing the cost for GIS division was not appropriate, then the percentage adopted by him at 90% for salary expenses and 50% for other expenses are also not based on any proper analysis. It is noteworthy that the assessee had capitalized the salary expense on actual basis based on the personnel deployed in the GIS division. The actual salary expense of GIS division had varied from 31% to 35% in the past years and therefore, on that basis he had estimated the other expense for capitalization by allocating the total expenses at 35% for GIS division.
In view of the above facts, I am of the view that the facts of the case do not attract any penalty u/s 271(1)(c) of the Act as the assessee has filed complete details and explanation before the AO as well as before the CIT (A) which were correct and bona fide. Accordingly, I confirm the order of the CIT (A) deleting the penalty. The appeal of the revenue is dismissed.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 10-08-2016