2021 (9) TMI 392 - AT - Income Tax

Tribunal Cancels Penalties for ROC Fees and Interest - Appeal Allowed

The Tribunal allowed the appeal, deleting the penalties levied under Section 271(1)(c) for both the disallowance of ROC fees and interest expenditure. The ... Addition u/s 271(1)(c) - addition of RoC charges and interest expenditure - AO disallowed the same with the observation that the assessee has not explained and not brought on record any material to his satisfaction - HELD THAT:- On appeal before the Ld. CIT(A), the Ld. CIT(A) sustained the additions made by the Assessing Officer and the assessee did not prefer any further appeal. Subsequently, the Assessing Officer initiated the proceedings u/s 271(1)(c) of the Act and levied the penalty. As the expenditure claimed by the assessee are debatable and merely because these expenditures were disallowed and as well as assessee preferred not to appeal before second appellate authority. As relying on RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] 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 attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). - Decided in favour of assessee. Issues Involved:1. Disallowance of ROC fees claimed under Section 35D.2. Disallowance of interest expenditure under Section 36(1)(iii).3. Levy of penalty under Section 271(1)(c) for both disallowances.Detailed Analysis:1. Disallowance of ROC Fees Claimed under Section 35D:The assessee claimed Rs. 27,400 as preliminary expenses under Section 35D for ROC fees. The Assessing Officer (AO) disallowed this amount, stating that the assessee did not prove the increase in share capital was for the extension of its existing industrial undertaking or for setting up a new industrial unit. The CIT(A) upheld this disallowance.During the appeal, the assessee argued that the ROC fees were for expanding business and should be deductible under Section 35D. The assessee cited the Finance Act, 2008, which extended the amortization of preliminary expenses to all undertakings. The assessee relied on the case of CIT v. Reliance Petro Products Pvt. Ltd., arguing that the mere disallowance of a claim does not attract penalty provisions. The Tribunal noted that the issue was debatable and the expenditure claimed was bona fide. Thus, the penalty for this disallowance was deleted.2. Disallowance of Interest Expenditure under Section 36(1)(iii):The assessee debited Rs. 1,33,78,834 as interest expenditure on borrowed capital. The AO disallowed Rs. 21,02,649, stating the assessee could not prove the borrowed funds were used for business purposes and observed that the funds were diverted to a sister concern. The CIT(A) upheld this disallowance.The assessee contended that the advances to the holding company were for business expansion and were made out of free funds, not borrowed capital. The assessee argued that the disallowance was a debatable issue and cited the case of Reliance Petro Products Pvt. Ltd. to argue against the penalty. The Tribunal found that the assessee had sufficient own funds and the advances were for business expediency. The disallowance was considered debatable, and the penalty was deleted.3. Levy of Penalty under Section 271(1)(c):The AO initiated penalty proceedings under Section 271(1)(c) for both disallowances, arguing that the assessee furnished inaccurate particulars of income. The CIT(A) sustained the penalty, relying on Section 271(1)(c) and relevant case laws.The assessee argued that full disclosure was made, and the issues were debatable. The Tribunal referred to the Supreme Court's decision in Reliance Petro Products Pvt. Ltd., which held that merely making an incorrect claim does not amount to furnishing inaccurate particulars. The Tribunal observed that the expenditures were debatable and the claims were bona fide. Therefore, the penalty was not justified and was deleted.Conclusion:The Tribunal allowed the appeal, deleting the penalties levied under Section 271(1)(c) for both the disallowance of ROC fees and interest expenditure. The Tribunal emphasized that the issues were debatable and the claims were made in good faith. The decision was pronounced on 31/08/2021.