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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: SHRI B.R.BASKARAN (AM) & SHRI RAM LAL NEGI (JM)
This appeal has been preferred by the revenue against order dated 26/06/2014 passed by the Ld. CIT (Appeals)-21, Mumbai for the assessment year 2008-09.
Brief facts of the case are that the assessee engaged in the business of development and trading in software, hardware, allied software and IT enabled services, filed its return of income declaring the total income as ‘NIL’. The Case was selected for scrutiny. The assessee also submitted revised statement of total income during the assessment proceedings.
After verification, in the light of the submissions of the assessee, the AO inter alia made disallowance of Rs. 2,30,08,887/-, capitalized by the assessee under the head “R & D expenditure” and claimed as deduction u/s 35(1)(i) of the Income Tax Act, 1961( in short ‘the Act’), in the computation of income and assessed the total income of the assessee at Rs. 3,40,73,336/-. Accordingly, the AO imposed minimum penalty of Rs. 78,20,721/-. The penalty order was challenged before the CIT(A). The Ld. CIT (A), following the order of the Ld. CIT(A) passed in assessee’s own case for the A.Y. 2007-08, cancelled the penalty aforesaid. The revenue is in appeal against the impugned order passed by the Ld. CIT(A) on the following effective ground of appeal:-
“On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting penalty amounting to Rs. 78,20,721/- levied by the A.O. u/s 271(1)(c) of the I.T. Act, 1961 on the disallowance being, R&D expenditure of Rs. 2,30,08,887/-”
Before us the Ld. Departmental Representative (DR) relying on the assessment order submitted that the Ld. CIT(A) wrongly cancelled the penalty imposed by the AO. The authorized representative (AR) on the other hand submitted that since the Ld. CIT(A) has passed the impugned order following the order passed by the CIT(A) in assessee’s own case for the assessment year 2007-08 and the said order has been confirmed by the ITAT in M/2013, therefore, the appeal filed by the revenue is liable to be dismissed.
We have heard the rival contention and gone through the entire material placed on record. We notice that in penalty appeal for the A.Y. 2007-08 filed by the revenue in assessee’s own case has been dismissed by the co-ordinate Bench of the Tribunal holding as under:-
“6. We have carefully considered the rival submissions. Factually speaking, the expenditure of Rs. 2,93,13,061/- was incurred by the assessee on development of software utilized for the purpose of providing services to its clients. It has a host of software products in the Total Branch Automation (TBA) and Core Banking activities. It was explained that such TBA applications which are developed by the assessee are successfully running across 4000 branches of various banks. The enrichment of such product is an ongoing process in terms of which assessee reviews various features and modules of the software so as to modify/update them. The assessee identified the cost incurred on such exercise at Rs. 2,93,13,061/- and capitalized the same as R &D expenditure provided benefits in the form of increased revenues in the current as well as future years. So however, the assessee explained that in the income tax return the same was claimed as revenue expenditure because no new asset came into existence by incurrence of such expenditure. It was also pointed out, and which has been reproduced by the Ld. CIT(A) in his order in para 2.2, that such expenditures being salaries, books and periodicals, travelling, staff welfare, telephone expenses, etc. were in the nature of revenue expenditure entitled for depreciation @ 60% and in the present we are not concerned with the merits of the claim of the assessee of such expenditure being revenue in nature. The only aspect that is to be addressed is as to whether penalty under section 271(1)(c) of the Act is attracted or not, in the facts and circumstances of the case.
6.1 In this context, it is noticeable that the area of difference between assessee and the Revenue is merely the nature of expenditure i.e. whether it is capital expenditure or revenue expenditure. The factual matrix of the case clearly brings out that so far as the furnishing of the particulars of expenditure is concerned none was found to be false or otherwise wrong.
Therefore, in our view unless the particulars with respect to the claim made by the assessee are found to be false, it would be improper to bring such a claim within the purview of section 271(1)(c) of the Act on account of furnishing inaccurate particulars. The aforesaid proposition is well supported by the judgment of Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. 322 ITR 158(SC). It is also a well settled proposition that the assessment proceedings and the penalty proceedings under section 271(1)(c) of the Act are independent proceedings and that the finding in the course of assessment proceedings would not ipso-facto determine the leviability of penalty under section 271(1)(c) of the Act although such a finding may carry persuasive value. In the present case, we find that the assessee’s claim of treating the expenditure as revenue expenditure has merely been differed with by the Revenue and it is not a case where the claim of the assessee was found to be ingenuine. Moreover, Ld. CIT(A) has also referred to various decisions to point out that the issue whether software expenditure is to be regarded as revenue or capital expenditure depends on facts and circumstances of a particular case and is a debatable issue which does not justify the imposition of penalty under section 271(1)(c) of the Act. This aspect of the matter is quite well appreciated by Ld. CIT(A).
6.2 Considering the entirety of facts and circumstances of the case and the afore said discussion, we hereby affirm the order of Ld. CIT(A) deleting the penalty levied by the A.O. under section 271(1)(c) of the Act.”
Since, in the identical issue in assessee’s own case for the assessment year 2007-08, the findings of the Ld. CIT(A) has been upheld by the coordinate Bench and the impugned order passed by the Ld. CIT(A) is in accordance with the decision rendered by the ITAT in assessee’s own case for the A.Y. 2007-08 aforesaid, there is no scope to interfere with the impugned order. In our considered opinion the order passed by the Ld. CIT (A) does not suffer from any legal infirmity. Hence, respectfully following the decision rendered by the coordinate Bench in assessee’s own case for the assessment year 2007-08, we uphold the impugned order and dismiss the appeal filed by the revenue.