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Oriental Pathways (Nagpur) Pvt. Ltd. Versus ACIT, Circle-13 (1) , New Delhi.

2015 (9) TMI 601 - ITAT DELHI

Penalty u/s 271(1)(c) - disallowance of expenses written off u/s 35D - Held that:- Admittedly and undisputedly, the claim of preliminary expenses was allowed by the AO in five equal instalments starting from AY 2009-10 which also shows that 1/5th part of the claim of the assessee has been allowed by the AO during the year under consideration and remaining part has also been allowed by the AO in four equal instalments in the subsequent assessment years. Now, under above noted facts and circumstan .....

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8 - DELHI HIGH COURT ] wherein dismissing the respective appeals of the revenue, it was held that the AO did not contradict the plea of the assessee that excess claim was an inadvertent error and the excess claim was not advantageous to the assessee, therefore, deletion of penalty was held as justified.

It is clear that the 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 su .....

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c) of the Income Tax Act, 1961 (for short the Act) has been upheld confirming the penalty on the assessee. However, the assessee has raised as many as five grounds in this appeal but the crux of the case is contained in ground no. 1 which reads as under:- 1. The Id. CIT(A) has erred in confirming the order of the A.O. levying penalty u/s 271(1)(c) of ₹ 11,60,011/-. The appellant contends that there is no concealment of income or furnishing of any inaccurate particulars of income and theref .....

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allments. 3. The appellant has also given explanation that in view of the AS 26, the preliminary expenses were written off in the profit & loss account and that in the tax audit there was no reference by the tax auditors for claim u/s 35D. Under these facts and circumstances, the appellant should not be penalized. 4. The case laws relied upon by the Id. CIT(A) are distinguishable on facts and decision based on such case laws is wrong and bad. The penalty levied should be deleted. 5. The appe .....

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is based on the Accounting Standard 26 with regard to impugned preliminary expenses whereby the entire preliminary expenses are required to be written off in the P&L account in the year in which the assessee started commencement of business operations. The assessee justified its claim and submitted that the impugned preliminary expenses were written off in the P&L account by following AS 26. The AO dismissed explanation and contention of the assessee in his order dated 30.11.2011 passed .....

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ished beyond doubt that the assessee has furnished inaccurate particulars of income to the extent of ₹ 34,12,800 on account of disallowance of expenses written off u/s 35D of the Act. The assessee carried the matter before the first appellate authority but remained empty handed as the CIT(A) also dismissed explanation and contention of the assessee and upheld the penalty by passing the impugned order. Now, the assessee is before this Tribunal in this second appeal with the main ground as r .....

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he explanation submitted by the assessee before the authorities below is bonafide, correct and acceptable because it is not a case where appellant has made a claim for wrong or bogus expenses. Ld. AR further pointed out that the expenditure claimed is allowable under the Income Tax provisions. However, the claim is subject to the provision of 350 and allowed in 5 equal installments. Thus, the allowability of entire claim was a debatable issue and if the assessee has accepted assessment order, th .....

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, the AO has placed reliance on the decision of Hon ble Delhi High Court in the case of CIT vs Zoom Communication (P) Ltd. passed in ITA NO. 7/2010 dated 24.5.2010 which is not applicable to the facts of the present case. Ld. AR further submitted that the issue is squarely covered in favour of the assessee by the judgment of Hon ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. (2012) 348 ITR 306 (SC) and in the case of CIT vs Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC) (par .....

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ised as expenses. Ld. AR further pointed out that the AO did not agree to the claim of the assessee and allowed only 1/5th of the claim and remaining part of the claim was allowed in four equal instalments in the subsequent assessment year, therefore, it cannot be alleged that either the assessee furnished inaccurate particulars of its income or has concealed particulars of its income in any manner. Ld. AR also pointed out that the claim of the assessee has not been found incorrect or bogus by t .....

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ium Ltd. (supra). Replying to the above, ld. DR supported the penalty order and the impugned order and submitted that in view of provisions of section 35D of the Act, the entire preliminary expenses are allowable in five equal instalments and the assessee made claim of entire preliminary expenses in the year wherein the assessee started business operations which was the wrong claim, therefore, penalty u/s 271(1)(c) of the Act was imposable on the assessee. However, ld. DR fairly accepted that th .....

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ry outset, we note that the assessee has mentioned preliminary expenses written off in the P&L account and in the Notes to account in para F , it has been mentioned that as per AS-26, preliminary expenses are fully recognised as expenses (PB page 14 & 21). These details have been filed in the form of audited report along with return of income. We further observe that it is not the case of the revenue that the claim of preliminary expenses written off was either bogus or incorrect. Per co .....

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year viz. AY 2009-10 and the same was allowed in five AYs starting from the assessment year under consideration. Hence, in this situation, we of the considered view that the case of the assessee is squarely covered in favour of the assessee by the judgement of Hon ble Supreme Court in the case of CIT vs Reliance Petroproducts and judgement of Hon ble Supreme Court in the case of CIT vs Brahmputra Consortium Ltd. wherein dismissing the respective appeals of the revenue, it was held that the AO di .....

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the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; 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 suppresse .....

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ment 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, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Secti .....

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