2021 (5) TMI 428 - AT - Income Tax

Tribunal partially allows appeal, deletes penalties for disallowed interest & export expenses. Judgment on April 19, 2021.

The Tribunal partially allowed the appeal, deleting the penalties imposed for both the disallowance of interest provision and export product development ... Penalty u/s 271(1)(c) - Validity of notice u/s 274 - whether there is concealment of income or furnishing of inaccurate particulars of income and as such the notice issued under section 274 ? - HELD THAT:- At the first instance, while replying to the penalty show-cause notice the assessee has not protested that the show-cause notice issued by the Department was not proper as there was no basis for issuance of the notice under section 271(1)(c) of the Act and both limbs in the said provision do not get attracted in assessee’s case. Since the assessee has not been objected to the issuance of the show-cause notice that the same was not proper. Accordingly, the ground raised by the assessee stands dismissed. Disallowance of interest expenditure under section 43B as well as disallowance export product development expenses - In this case, when there was no revival of assessee’s business while the business was closed down permanently, the question of “enduring benefit” does not arise. Whether the expenditure is in the form of capital or revenue in nature are always debatable issue. Therefore, though the assessee has claimed the capital expenditure as revenue expenditure that itself is not sufficient to levy penalty. The non-acceptance of the claim of the assessee cannot tantamount to furnishing of inaccurate particulars warranting levy of penalty as has been held by the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd.. [2010 (3) TMI 80 - SUPREME COURT] The considerations for imposition of penalty under section 271(1)(c) of the Act are however entirely different. It requires existence of mens rea on the part of the assessee and either of the twin conditions of (i) concealment of income or (ii) filing of inaccurate particulars by the assessee, are required to be satisfied and the burden of proving that lies upon the revenue authority and not on the assessee. Merely because the claim of expenditure made by the assessee was found to be a wrong claim and is disallowed, it does not per se attract imposition of penalty under section 271(1)(c) of the Act. Just because the assessee has not preferred further appeal before the appellate authority against the quantum addition that itself cannot attract imposition of penalty. Under the above facts and circumstances, the penalty levied under section 271(1)(c) of the Act towards disallowance of interest expenditure under section 43B of the Act as well as disallowance export product development expenses stand deleted - Decided in favour of assessee. Issues:1. Validity of show-cause notice under section 274 r.w.s. 271(1)(c) of the Income Tax Act.2. Levy of penalty under section 271(1)(c) for disallowance of interest provision.3. Levy of penalty under section 271(1)(c) for disallowance of export product development expenses.Issue 1: Validity of Show-Cause Notice:The appeal challenged the show-cause notice's validity under section 274 r.w.s. 271(1)(c) of the Act, arguing that the notice did not specify the exact charge of concealment or inaccurate particulars. The Tribunal noted that the appellant did not object to the notice's issuance, unlike in a cited case, where specific objections were raised. Consequently, the Tribunal dismissed the ground raised by the appellant.Issue 2: Penalty for Disallowance of Interest Provision:The Assessing Officer disallowed a provision for interest payable to Syndicate Bank, treated it as inaccurate particulars, and levied a penalty under section 271(1)(c). However, the Tribunal found that the appellant disclosed the liability in financial statements, indicating no intention to conceal. The Tribunal considered it a bona fide mistake, as the claim, though incorrect, was not an attempt to evade tax. Thus, the penalty was deleted.Issue 3: Penalty for Disallowance of Export Product Development Expenses:The Assessing Officer disallowed claimed export product development expenses as revenue expenditure, treating them as capital expenses and levied a penalty under section 271(1)(c). The Tribunal noted that the expenditure was claimed due to the permanent closure of business operations, and the disallowance was agreed upon. It held that the non-acceptance of the claim did not warrant a penalty, as it did not establish a conscious act to furnish inaccurate particulars. The penalty was deleted based on the facts and circumstances.In conclusion, the Tribunal partially allowed the appeal, deleting the penalties imposed for both the disallowance of interest provision and export product development expenses. The judgment was pronounced on April 19, 2021, in Chennai.