2012 (2) TMI 8 - HC - Income Tax

Income Tax Tribunal upholds penalty, remands Birla AT&T issue for fresh review; disallows AT&T expenses under Section 40(a)(i).

The Tribunal upheld the penalty under Section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2000-01, except for the amount received from ... Penalty u/s 271(1)(c) – dis-allowance of expenses on ground of non-deduction of tax at source u/s 40(a)(i) – Tribunal deleted the penalty levied by A.O. on ground that assessee has been able to justify and discharge the onus under Explanation 1 to Section 271(1)(c) - A.Y. 2000-01 – Held that:- In present case, assessee had contended that Section 40(a)(i) was not applicable as the words used were „tax has been paid or deducted‟. It is possible to submit that the amendment which came in 2004 was clarificatory in nature, but this is different from stating and holding that the assessee could not have raised the said plea or argued that the dis-allowance under the pre amended Section 40(a)(i) was not justified or mandatory. It is undisputed that TDS has been deducted and paid in the next A.Y. Assessee can in the penalty proceeding show and explain that interpretation was plausible and had merit, though was not accepted. Order of Tribunal deleting penalty is justified – Decided against the revenue. Issues:- Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2000-01.- Disallowance of expenses paid to AT&T, Singapore.- Disallowance of expenses paid to the Registrar of Companies (ROC).- Amount received from Birla AT&T.- Interpretation of Section 40(a)(i) regarding deduction of expenses.Analysis:1. The Revenue challenged the Income Tax Appellate Tribunal's order deleting the penalty under Section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2000-01. The Assessing Officer imposed penalties on various accounts, including disallowance of expenses paid to AT&T, Singapore, disallowance of expenses paid to the Registrar of Companies (ROC), and an amount received from Birla AT&T.2. The Tribunal set aside the addition related to the amount received from Birla AT&T for fresh adjudication. The main issue was whether the Tribunal was justified in deleting the penalty under Section 271(1)(c) for the disallowance of expenses paid to AT&T, Singapore, and the ROC.3. The Tribunal considered the nature of the expenses and whether they were capital or revenue expenditures. The Tribunal accepted the respondent-assessee's explanation that they believed a portion of the payment to the ROC could be treated as revenue expense based on legal advice. The Tribunal also noted that the Assessing Officer had allowed a similar claim in a previous assessment year, considering the quantum of income and the explanation provided.4. Regarding the disallowance of expenses paid to AT&T, Singapore, under Section 40(a)(i), the Tribunal examined the timing of the payment and the services rendered. The Tribunal found that the liability for the services had crystallized during the relevant assessment year, even though the bill was raised later. The Tribunal upheld the addition made by the Assessing Officer based on Section 40(a)(i).5. The Tribunal further analyzed the interpretation of Section 40(a)(i) and whether the respondent-assessee had discharged the burden under Explanation 1 to Section 271(1)(c). The respondent's argument that TDS was deducted but paid later was rejected, emphasizing that the words 'paid or deducted' cannot be interpreted as suggested.6. The Tribunal discussed the amendment to Section 40(a)(i) in 2004, clarifying that the deduction for expenses payable outside India without tax deduction would be available in the subsequent year. The Tribunal concluded that no substantial question of law arose for consideration based on the facts and findings, dismissing the appeal.In conclusion, the judgment analyzed the penalty under Section 271(1)(c) and the disallowance of expenses, emphasizing the interpretation of Section 40(a)(i) regarding deduction of expenses paid to AT&T, Singapore, and the ROC for the Assessment Year 2000-01.