1993 (2) TMI 122 - AT - Income Tax

Penalty canceled when inaccurate income particulars led to loss.

ZAVERI PAPER & BOARD MILL. Versus INCOME TAX OFFICER.

ZAVERI PAPER & BOARD MILL. Versus INCOME TAX OFFICER. - TTJ 047, 170, Issues Involved:1. Legitimacy of the penalty levied under Section 271(1)(c) for furnishing inaccurate particulars of income.2. Applicability of Explanation 4 to Section 271 in cases where the assessed figure is a loss.3. Determination of whether the expenses claimed by the assessee were of a capital or revenue nature.4. The legal point of whether penalty under Section 271(1)(c) can be levied when the ultimate assessed figure is a loss.Detailed Analysis:1. Legitimacy of the Penalty Levied under Section 271(1)(c) for Furnishing Inaccurate Particulars of Income:The case revolves around the penalty of Rs. 42,423 levied under Section 271(1)(c) of the IT Act, 1961, for allegedly furnishing inaccurate particulars of income. The assessee had claimed expenses amounting to Rs. 96,674, which were disallowed by the ITO on the grounds that they pertained to earlier years and were not admissible under the law. The CIT(A) upheld the penalty, stating that claiming deductions for expenses of a revenue nature pertaining to earlier years amounted to furnishing inaccurate particulars with the intent to conceal income. The assessee argued that the expenses were legitimate and incurred under different heads, with a significant portion capitalized and the remainder debited as miscellaneous expenses. The contention was that such disallowance should not result in a penalty under Section 271(1)(c).2. Applicability of Explanation 4 to Section 271 in Cases Where the Assessed Figure is a Loss:The CIT(A) held that, in view of Explanation 4 to Section 271, the penalty is validly imposable even when the returned and assessed figures are a loss. The Senior Departmental Representative supported this view, arguing that the excessive claim of deduction amounted to furnishing inaccurate particulars of income, thus justifying the penalty. The representative cited various judgments and circulars to bolster the argument that penalty under Section 271(1)(c) is leviable even when the ultimate assessed figure is a loss.3. Determination of Whether the Expenses Claimed by the Assessee Were of a Capital or Revenue Nature:The Tribunal noted that the assessee had incurred substantial expenditure aggregating to Rs. 2,87,016 under various heads before the commencement of production. Out of this, Rs. 2,07,906 was capitalized and allocated to various asset accounts, while Rs. 79,110 was debited as miscellaneous expenses in the P&L account. The Tribunal acknowledged that the treatment of such expenses could be debatable, as they could either be capitalized or considered revenue expenses, depending on the facts relating to each item. The Tribunal referred to the Delhi High Court judgment in Shriram Refrigeration Industries Ltd. vs. CIT, which indicated that such claims might be a debatable point and not necessarily an act of furnishing inaccurate particulars of income.4. The Legal Point of Whether Penalty under Section 271(1)(c) Can Be Levied When the Ultimate Assessed Figure is a Loss:The Tribunal examined various judgments and concluded that penalty under Section 271(1)(c) cannot be levied when the total income is assessed at a figure of loss. The Tribunal referred to the judgments of the Punjab & Haryana High Court in CIT vs. Prithipal Singh and Co., the Delhi High Court in Modi Cements Ltd. vs. Union of India, and the ITAT, Jaipur Bench in Indo German Electricals vs. ITO, which supported the view that no penalty can be levied in such cases. The Tribunal also considered the provisions of Section 271(1)(c) and Section 143(1A), noting that these provisions do not explicitly state that they apply in cases where there is still a loss after adjustments. The Tribunal emphasized that where the language of a provision is capable of more than one meaning, the interpretation that favors the assessee should be adopted, particularly in penalty provisions.Conclusion:The Tribunal concluded that the penalty levied by the ITO and confirmed by the CIT(A) was not justified and should be canceled. The appeal was allowed, and the penalty was annulled.