Appeal success: Penalty deleted for incorrect claim on technical know-how expense

The appeal was filed against the CIT(A) order for the assessment year 1998-99 regarding the disallowance of technical know-how expenditure under section 35AB and the penalty imposed under section 271(1)(c). The Tribunal found that the Assessee's treatment of the expenditure as revenue was genuine, and there was no concealment or furnishing of inaccurate particulars. Relying on legal precedents, the Tribunal held that incorrect claims do not warrant penalty under section 271(1)(c). Consequently, the penalty of Rs. 14,21,820 was deleted, and the Assessee's appeal was allowed on 21-02-2014.

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Issues:
Appeal against CIT(A) order for A.Y. 1998-99; Disallowance of technical know-how expenditure u/s. 35AB; Penalty levied u/s. 271(1)(c) of Rs. 14,21,820.

Analysis:
The appeal was filed against the CIT(A) order for the assessment year 1998-99. The Assessee, engaged in manufacturing, filed its return declaring total income of Rs. 24,08,800. The assessment under section 143(3) determined total income at Rs. 63,88,440 after disallowing technical know-how expenditure u/s. 35AB of Rs. 40,62,344. The CIT(A) dismissed the appeal, leading to penalty imposition by the A.O. of Rs. 14,21,820. The main ground of appeal was the confirmation of the penalty levied by the A.O. u/s. 271(1)(c) of Rs. 14,21,820.

The Assessee argued that the technical know-how expenditure was treated as deferred revenue expenses in the accounts but claimed as revenue expenditure. The A.O. disallowed the deduction under section 35AB, allowing only 1/6th of the amount spent. The Assessee contended that it did not furnish inaccurate particulars and disclosed the treatment of know-how fees in the return. Various legal references were made to support the claim of allowability as revenue expenditure.

The Revenue argued that the Assessee should have been aware of Section 35AB provisions and claimed excess deduction, furnishing inaccurate particulars. The A.O. and CIT(A) supported the disallowance. The Tribunal noted the debatable nature of the issue due to conflicting decisions. The Assessee's submissions were found to be genuine and not proven false or not bonafide by the Revenue.

The Tribunal referred to the legal position that penalty proceedings are distinct from assessment proceedings. Merely because additions were confirmed on appeal does not imply concealment of income. The onus is on the Revenue to prove concealment or inaccurate particulars. Citing the Reliance Petroproducts case, the Tribunal held that incorrect claims do not amount to furnishing inaccurate particulars. Consequently, no penalty was found leviable under section 271(1)(c) and was directed to be deleted. The appeal of the Assessee was allowed, and the order was pronounced in open court on 21-02-2014.

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