Penalty under Section 271(1)(c) deleted for incorrect legal claim on mining compensation deduction timing

ITAT Jaipur dismissed revenue's appeal against deletion of penalty u/s 271(1)(c). Assessee claimed deduction for compensation paid to farmers for mining rights acquisition. AO allowed expenditure over 20 years instead of single year, leading to addition and penalty. CIT(A) deleted penalty relying on SC decision in Reliance Petro Products, holding that incorrect legal claim doesn't constitute furnishing inaccurate particulars. ITAT upheld CIT(A)'s decision, noting assessee provided complete expenditure details and expenditure was ultimately allowed on deferred basis. Tribunal followed Delhi ITAT precedents in similar deferred expenditure cases.

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Issues Involved:

1. Whether the deletion of the penalty under Section 271(1)(c) of the Income Tax Act, 1961, by the CIT(A) was justified.
2. Nature of the expenditure incurred by the assessee: whether it is a revenue expenditure or a capital expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):

The primary issue in this case was whether the CIT(A) was justified in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The Revenue argued that the assessee furnished inaccurate particulars of income by claiming compensation paid to farmers for acquiring mining rights as revenue expenditure, which was treated as capital expenditure during assessment. The penalty of Rs. 1,26,58,910/- was imposed by the AO on this basis.

The CIT(A) and the ITAT found that the assessee had disclosed all material facts and that the claim was bona fide. The CIT(A) relied on the Supreme Court's decision in CIT Vs. Reliance Petroproducts Pvt. Ltd., which held that merely making a claim not accepted by the Revenue does not amount to furnishing inaccurate particulars. The Tribunal concurred with this view, emphasizing that the assessee disclosed all details of its expenditure, and the claim was not found to be false or mala fide. Thus, the penalty was not leviable as there was no concealment or furnishing of inaccurate particulars of income.

2. Nature of Expenditure: Revenue vs. Capital:

The second issue revolved around whether the expenditure incurred by the assessee was a revenue expenditure or a capital expenditure. The assessee argued that the compensation paid to farmers was for extraction of limestone and did not confer ownership rights over the land, thus qualifying as revenue expenditure under Section 37(1). However, the AO treated it as capital expenditure, considering the long-term rights over the mining land.

The CIT(A) and the ITAT accepted the expenditure as revenue in nature but amortized it over 20 years, aligning with the anticipated period of benefit from the mineral extraction. This treatment was consistent with the AO's earlier position for AY 2008-09, where no penalty was imposed, establishing a precedent for amortization.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee's claim was not inaccurate, and the expenditure was allowed over 20 years as deferred revenue expenditure. The Tribunal referenced similar cases, like Simplex Pharma (P) Ltd. and Onicra Credit Rating Agency of India Ltd., where penalties on deferred revenue expenditure were deleted, reinforcing that the penalty under Section 271(1)(c) was not applicable.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming that the deletion of the penalty by the CIT(A) was justified. It concluded that the expenditure was a revenue expenditure allowed over 20 years, and the assessee had not furnished inaccurate particulars of income. The decision was pronounced in open court on 27/09/2024, marking the end of the appellate proceedings.

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