TMI Blog2012 (11) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... tallation – Machine transfer to store and was sold as store scrap – Held that:- The disallowance of bonafide claim cannot be treated as furnishing inaccurate particulars of income or concealment of particulars of income. Mere rejection of the claim of the assessee would not attract provisions of Sec. 271(1)(c). It is not a case where it could be said that assessee has claimed the said loss as revenue loss dishonestly for avoiding tax particularly when all the relevant facts have been disclosed pertaining to the claim made. Even on erroneous claim for deduction cannot warrant penalty until and unless it is proved that the claim was made with dishonest intention. Issue decides in favour of assessee. Penalty u/s 271(1)(c) – Assessee claim capital expenditure as revenue expenditure – AO levy penalty u/s271(1)(c) on furnishing inaccurate particulars of income – Concealment of income – Held that:- As the issue as to whether the expenditure constitute revenue expenditure or capital expenditure is a debatable issue. The assessee placed all relevant facts in the return filed and made its claim bonafide as revenue expenditure. Nothing is available on record to show that the belief of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case and in law, the assessee submits that the Learned Commissioner (Appeals) failed to appreciate that the assessee had made full disclosure of facts relevant to its claim of loss on sale of machinery in the Accounts by debiting under a separate head Administration, Selling General Expenses and consequently there is no concealment or furnishing inaccurate particulars of income warranting the levy of penalty under section 271(1)(c). 5. On the facts and circumstances of the case and in law the Learned Assessing Officer failed to appreciate that no penalty lies on matters on claims made based on judicial pronouncements. 6. On the facts and circumstances of the case and in law the Learned Assessing Officer failed to appreciate that no penalty lies on a claim for deduction made where two views are possible. 7. On the facts and circumstances of the case and in law the Learned Assessing Officer failed to appreciate that no penalty lies on an addition made in the assessment which is debatable. 8. On the facts and circumstances of the case and in law the Learned Assessing Officer failed to appreciate that the levy of penalty is discretionary and no penalty therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (supra) has no applicability to the facts of the case of the assessee. 7. We have carefully considered submissions of ld representatives of parties and also requisite approval given by the Addl .CIT, Range 1(1), Mumbai on 29.8.2008. There is no dispute to the fact that AO has complied with the requisite procedure to levy the penalty and submission of the assessee that Addl . CIT has acted in a mechanical way is based that assessee filed its further reply, the hearing had taken place on 29.8.2008, the proposal was submitted to Addl . CIT also on 29.8.2008, and the approval was also given by Addl . CIT on 29.8.2008 and thereafter finally penalty order was passed on 29.8.2008. There is no facts on record that Addl .CIT while giving his approval to levy penalty u/s.271(1)(c) of the Act had not applied his mind. On the other hand, on perusal of copy of approval by Addl . CIT and the fact that penalty notice was issued in April , 2001, it is observed that penalty proceedings were kept in abeyance as the assessee filed appeal disputing the additions made by the AO. Therefore, we agree that ld CIT(A) has rightly held that AO might had discussed the matter with Addl . CIT without waitin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent loss, loss on account of destruction of assets or losses incidental to trade. 10. The AO did not accept the explanation of the assessee and disallowed the loss claimed. Being aggrieved, assessee filed appeal before ld CIT(A) taking the following grounds: (a) The assessee submits that loss of Rs. 1,32,83,291/ - incurred on sale of unused plant and machinery is allowable as loss incidental to business. (b) The assessee submits if it is not al lowed as loss incidental to business, it should be allowed as loss under the head Capital Gains and if it cannot be set off it has to be carried forward. 11. Ld CIT(A) held that the claim of the assessee is to be allowed as capital loss under the head capital Gains . It is observed that in further appeal before the Tribunal , the Tribunal vide its order dated 30.1.2008 confirmed the order of ld CIT(A). In view of above, AO initiated penalty proceedings u/s.271(1) (c) of the Act . 12. The AO in the penalty order held that assessee has not disclosed full facts either in the profit and loss account or in any note below the computation of income in the return. Further, capital loss on sale of printing press imported earlier was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The judgment in Dilip N. Shroff s case [2007)8 Scale 304 (SC) has not considered the effect and relevance of section 276C of the I.T.Act . The object behind the enactment of sect ion 271(1)(c) read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matteri of prosecution under section 276C of the I.T.Act . 14. Ld CIT(A) has further considered the decision of Hon ble Delhi High Court in the case of CIT vs. Zoom Communication P Ltd, 327 ITR 510 (Del) and has held that there was a deliberate at tempt on the part of the assessee to claim excessive expenditure. He has further stated that assessee company is a Limited Company, which is having support of inhouse and also fleet of tax advisors. In spite of all these things, assessee company is making claim of an expenditure which is not at all allowable expenditure. Hence, the act of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that if all the facts relating to the claim are disclosed and the information given in the return is not found incorrect or inaccurate, it was held by Hon ble Apex Court that assessee cannot be held guilty of furnishing inaccurate particulars of income. Ld A.R. submitted that Their Lordships of Hon ble Apex Court also held that a mere making of a claim, which is not sustainable in law, by itself , will not amount to furnishing inaccurate particulars regarding the income of the assessee and such claim made in the return cannot amount to furnishing inaccurate particulars. Ld A.R. also placed reliance on the decision of ITAT Mumbai in assessee s own case for assessment year 1993-94 dated 30.4.2010 in I.T.A. No.1189/M/2009 and referred paras 27 and 28 of the said order , which read as under: 27. Merely because the claim of expenditure is disallowed would not automatically lead furnishing of inaccurate particulars of income or concealment of particulars of income war ranted to penalty. It is not a case made out by the revenue that the assessee has claimed various expenditures dishonestly for avoiding tax when all the relevant facts were disclosed by the assessee pertaining to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct , it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms ; (i ) an item of receipt may be suppressed fraudulently; (i i) an item of expenditure may be falsely (or in an exaggerated amount ) claimed and both types at tempt 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. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in is return, which details, in themselves we not found to be inaccurate nor could be viewed as the concealment of income on its parts. 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 , in our opinion, attract the penalty under section 271(1) ( c ). If we accept the content ion of the revenue then in case of every return where the claim mad is not accepted by the AO for any reason, the assessee will invite penalty under section 271(1)( c ). That is clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls. Therefore, the loss on sale of said machine has been held by ld CIT (A) as capital loss which was also confirmed by the Tribunal in the appeal filed by the assessee. Ld D.R. refer red para 6.37 of the order of ld CIT(A) and submitted that ld CIT(A) distinguished the case of Reliance Petroproducts Pvt Ltd (supra) and placed reliance of the decision of Hon ble Delhi High Court in the case of Zoom communication P .Ltd (supra). Ld D.R. submitted that assessee company is having assistance and services of professionals in computing its income and, therefore, ld CIT(A) has rightly held that the claim, which is capital in nature has not been bonafidely claimed as revenue loss. He submitted that the order of ld CIT(A) be confirmed. 18. We have considered submissions of ld representatives of parties and orders of authorities below. We have also considered cases cited by ld representatives of parties in respect of their submissions. 19. We observe that there is no dispute to the fact that assessee imported machine Rotogravure print ing machine in 1980 at a cost of Rs.1,95,33,300 for its Kandivli Unit . However, said machine could not be installed and with the passage of time, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ldhana vs DCIT (supra) held that when assessee has furnished full details of the claim and has not concealed any particulars of income or has furnished inaccurate particulars of income, mere making a claim which is not sustainable in law, by itself , will not amount to furnishing inaccurate particulars regarding the income of the assessee. It was held that such claim made in the return cannot amount to furnishing inaccurate particulars. Considering the above case and the facts of the case before us that assessee has furnished full particulars of its income in the return filed, and has demonstrated that the claim is bonafide, we are of the considered view that mere rejection of the claim of the assessee would not attract provisions of section 271(1)(c) of the Act . Therefore, we hold that it is not a fit case to levy penalty under section 271(1)(c) of the Act in respect of disallowance of claim of loss of the assessee on sale of machine at Rs.1,32,83,299 as revenue loss but to consider it as capital loss. Hence, we allow grounds of appeal of the assessee by setting aside the orders of authorities below for levy of penalty on the claim of loss on sale of machine of Rs.1,32,83,299. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure under the building repair, furniture and fittings, electrical repairs, it is found that assessee company has incurred expenditure on renovation. Assessee was asked to furnish explanation about them. These replies have been filed by assessee vide its letter dt .14.3.2001. From the examination of details, it is seen that the following expenses have been incurred on extensive renovation of office premises: 1. Cochin Office (building repairs) : Rs.24,41,895 2. Renovation expenses (Renovation at Bangalore Of f ice) : Rs. 36,23,490 3. Electrical repairs at Bangalore office: Rs. 4,91,300 4. Delhi-Swimming Pool repair : Rs. 13,73,005 5. Cochin-Electrical system : Rs .5,10,297 Assessee was required to justify the above. In reply assessee submitted that the expenditure at Cochin is in respect of renovation of building. Assessee owns this building. Expenditure has been done on major renovation. Interior decoration, fittings and fixture have all been replaced. Assessee has failed to produce the copy of bill regarding this work and as such it is not possible to judge the extent of expenditure. Accordingly, claim of assessee of the expenditure being of current repair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this appeal , assessee contended before ld CIT(A) that assessee voluntarily attached Note No.16 to the computation of income filed in the return of income and made disclosure of the fact that there is a thin line of difference between what constitutes revenue expenditure and capital expenditure. That it is a highly debatable question in so far as the repair expenditure is concerned. The assessee also placed reliance on the decision of Hon ble apex court in the case of CIT vs. Reliance Petroproducts Pvt Ltd. , 322 ITR 158(SC) to state that a legitimate and a bonafide clam though disallowed cannot form the basis for the levy of penalty u/s.271(1)(c) of the Act . It was also contended that no case was made out by the AO that the claim of repair expenditure was not bonafide and the only ground for levy of penalty was because the amount had been disallowed in the assessment . Ld CIT(A) considered the submissions of assessee vide para 6.19 of the impugned order and deleted the penalty levied by the AO on account of disallowance of Rs.84,39,932 which reads as under: 6.19 I have considered the A.O. s order as well as the appellant s A/R submission. I have also taken note of the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record to show that the belief of the assessee and the explanation of the assessee were false and inherently impossible. Even an erroneous claim for deduction cannot warrant penalty unless and untilitis proved that the claim is made with dishonest intention. Therefore, we agree with ld A.R. that the case of the assessee is squarely covered by the decision dt .30.4.2010 of the Tribunal in assessee s own case for assessment year 1993-94(supra) as well as the decision of Hon ble apex court in the case of Reliance Petroproducts Pvt Ltd. (supra). Hence, we uphold the order of ld CIT(A) and reject ground No.1 of the appeal taken by the department. 28. In Ground No.2 of appeal , department has disputed the order of ld CIT(A) to delete the penalty levied by AO on account of disallowance of interest of Rs.59,575 on the borrowed funds which was advanced to subsidiaries/sister companies. 29. The relevant facts are that AO disallowed interest of Rs.11,74,886 on the ground that the borrowed funds had been diverted by the assessee for giving interest free advances to subsidiaries/sister companies for non-business purposes. However, in the appeal filed by the assessee on the above issue, IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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