TaxTMI 
TaxTMI 
2012 (11) TMI 757
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....ts and circumstances of the case and in law, the assessee submits that the Learned Commissioner (Appeals) erred in confirming the penalty on loss on sale of machinery of Rs.1,32,83,299/ - under Section 271(1)(c) of the Act . 3. On the facts and circumstances of the case and in law, the assessee submits that the learned Assessing Officer could not have discussed and obtained prior approval of the Addl . Commissioner of Income Tax on the same day on which he passed the penalty order, penalty order being not in compliance with sect ion 274(2) of the Income Tax Act , 1961 is invalid in law and learned CIT(A) erred in not canceling the same. 4. On the facts and circumstances of the case and in law, the assessee submits that the Learned Commissioner (Appeals) failed to appreciate that the assessee had made full disclosure of facts relevant to its claim of loss on sale of machinery in the Accounts by debiting under a separate head "Administration, Selling & General Expenses" and consequently there is no concealment or furnishing inaccurate particulars of income warranting the levy of penalty under section 271(1)(c). 5. On the facts and circumstances of the case and in law the Lea....
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.... a mechanical way in giving his approval to levy penalty. Therefore, penalty order is liable to be quashed. To substantiate his submissions, ld A.R. relied on the decision of ITAT Delhi in the case of M.P. Jain vs ITO, 32 TTJ (Del) 405. 6. On the other hand, ld D.R. submitted that the same very issue was raised by the assessee before ld CIT(A) and ld CIT(A) has passed a reasoned order vide paras 5.4 to 5.7. He submitted that there is no dispute to the fact that provisions of section 274 has duly been complied with by the AO before levy of penalty. Therefore, submissions of ld A.R. disputing the validity of penalty order has no merit . He submitted that case law relied upon by ld A.R. (supra) has no applicability to the facts of the case of the assessee. 7. We have carefully considered submissions of ld representatives of parties and also requisite approval given by the Addl .CIT, Range 1(1), Mumbai on 29.8.2008. There is no dispute to the fact that AO has complied with the requisite procedure to levy the penalty and submission of the assessee that Addl . CIT has acted in a mechanical way is based that assessee filed its further reply, the hearing had taken place on 29.8.20....
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....ts purpose. Not only this machine became outdated but also the spares were not available. The machine was lying uninstalled at Kandivli . Since it was not installed, no depreciation was claimed. Since the machinery was not usable by the company it was sold. The loss incurred including sales tax on sale amounted to Rs.1,32,83,299/ -. It is submitted that this is a loss incidental to trade. In carrying out business we have necessarily to go in for printing machines. Sometimes it so happens that delay in fruition of the project makes the spare parts and machines technologically obsolescent . Such losses in business are unavoidable and arise incidental to the business, in the same way as embezzlement loss, loss on account of destruction of assets or losses incidental to trade." 10. The AO did not accept the explanation of the assessee and disallowed the loss claimed. Being aggrieved, assessee filed appeal before ld CIT(A) taking the following grounds: "(a) The assessee submits that loss of Rs. 1,32,83,291/ - incurred on sale of unused plant and machinery is allowable as loss incidental to business. (b) The assessee submits if it is not al lowed as loss incidental to bus....
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....furnishing of inaccurate particulars of income. Ld CIT(A) has stated that as per decision of Hon'ble apex Court in the case of Union of India & Ors vs Dharmendra Textiles Processors and ors, 306 ITR 277, mens rea need not be established by the revenue in case of civil penalty including income tax penalty. Ld CIT(A) has also referred following observations of Hon'ble Apex Court from the case of Dharmendra Textiles (supra): "It is of significance to note that the conceptual and contextual difference between section 271(1)(c) and section 276C of the I.T. Act was lost sight of in Dilip N. Shroffs case [2007] 8 Scale 304 (SC). The Explanations appended to Section 271(1) (c) of the I.T.Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The judgment in Dilip N. Shroff 's case [2007)8 Scale 304 (SC) has not considered the effect and relevance of section 276C of the I.T.Act . The object behind the enactment of sect ion 271(1)(c) read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civi....
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.... and the claim was made bonafide as revenue loss in the profit and loss account for the assessment year under consideration. He submitted that said claim of the assessee was disallowed and ld CIT(A) considered it as capital loss. He submitted that ITAT Mumbai in the case of Walter Saldhana vs DCITA, 44 SOT 26 considered similar issue and held that when a claim is made which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding income of the assessee. It was held that no penalty u/s.271(1)(c) of the Act is sustainable in such a case. Ld A.R. also referred the decision of Hon'ble Apex Court in the case of CIT vs. Reliance Petroproducts P. Ltd. , 323 ITR 158 and submitted that if all the facts relating to the claim are disclosed and the information given in the return is not found incorrect or inaccurate, it was held by Hon'ble Apex Court that assessee cannot be held guilty of furnishing inaccurate particulars of income. Ld A.R. submitted that Their Lordships of Hon'ble Apex Court also held that a mere making of a claim, which is not sustainable in law, by itself , will not amount to furnishing inaccurate particulars regarding the income of....
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....able in law, by itself , will not amount to furnishing inaccurate particulars regarding the income of he assessee. Such claim made in the return cannot amount to the inaccurate particulars. 12. It was tried to be suggested that section 14A of the Act specifically excluded the deduction in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act . It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore reiterated before us that the Assessing officer had correctly reached the conclusion that since the assessee had claimed excessive deduct ions knowing that they are incorrect , it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms ; (i ) an item of receipt may be suppressed fraudulently; (i i) an item of expenditure may be falsely (or in an exaggerated amount ) claimed and both types at tempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not a....
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....the appeal of the revenue." 16. Ld A.R. submitted that in the facts and circumstances, levy of penalty on disallowance of above claim of the assessee be deleted. 17. On the other hand, ld D.R. supported the order of ld CIT(A) . He submitted that the AO in the assessment order clearly stated that said printing machine, imported by the assessee, was a capital asset . The claim of loss of the assessee on sale of that printing machine is not incidental to business of the assessee. The assessee company is not dealing in manufacture and selling of printing press nor it is engaged in the business of trading of printing press or any material . The business of the assessee consists of publicat ion of newspaper and journals. Therefore, the loss on sale of said machine has been held by ld CIT (A) as capital loss which was also confirmed by the Tribunal in the appeal filed by the assessee. Ld D.R. refer red para 6.37 of the order of ld CIT(A) and submitted that ld CIT(A) distinguished the case of Reliance Petroproducts Pvt Ltd (supra) and placed reliance of the decision of Hon'ble Delhi High Court in the case of Zoom communication P .Ltd (supra). Ld D.R. submitted that assessee....
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.... dishonest intention. The disallowance of bonafide claim cannot be treated as furnishing inaccurate particulars of income or concealment of particulars of income. It was held that the penalty cannot be levied particularly when the assessee disclosed primary facts in respect of the claim made but the claim were found not al lowable would not ipso facto warrants levy of penalty unless the disallowance made due to furnishing inaccurate particulars of income or concealment of particulars of income. We observe that Hon'ble apex Court in the case of Reliance Petroproducts Pvt . Ltd (supra) has considered the meaning of word 'particulars' used in section 271(1) (c) of the Act . We also observe that ITAT Mumbai in the case of Walter Saldhana vs DCIT (supra) held that when assessee has furnished full details of the claim and has not concealed any particulars of income or has furnished inaccurate particulars of income, mere making a claim which is not sustainable in law, by itself , will not amount to furnishing inaccurate particulars regarding the income of the assessee. It was held that such claim made in the return cannot amount to furnishing inaccurate particulars. Considering the above ....
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....his attention to Note No.16 to computation of income for making the claim of expenditure as revenue in nature. The relevant port ion of the said note is as under: "Since the question whether a repair expenditure is revenue or capital is a highly debatable one, the admissibility as revenue expenditure of amount debited as repairs will be discussed at the time of assessment ." 24. Ld CIT(A) has reproduced para 11 to 11.1 of the assessment order vide which, AO disallowed the claim of the assessee of revenue expenditure and made addition aggregating to Rs.84,39,932 as being capital in nature. The said relevant port ion has been stated by ld CIT(A) , which reads as under: "During the course of examination of details in respect of repairs expenditure under the building repair, furniture and fittings, electrical repairs, it is found that assessee company has incurred expenditure on renovation. Assessee was asked to furnish explanation about them. These replies have been filed by assessee vide its letter dt .14.3.2001. From the examination of details, it is seen that the following expenses have been incurred on extensive renovation of office premises: 1. Cochin Office (b....
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....renovation of Cochin office. In addition that , Rs.5,10,297 has been incurred on redoing the electrical system of Cochin Office, after discarding the old electrical system. Copy of bill is not produced. But from the descript ion provided, it is clear that the old electrical system has been totally dumped and a new system has been provided. Expenditure is therefore on account of major renovation of building and adds the value to the building, furniture and fixtures. Accordingly, expenditure is held to be capital in nature and claim of assessee is disallowed. 11.1 In view of the above, an addition of Rs.84,39,932 (Rs. 13,73, 000+Rs. 36,23,490+ Rs. 4,91, 300+Rs.24, 41, 845+Rs. 5,10,297) is made to the income of Assessee Company." 25. At the time of hearing of this appeal , assessee contended before ld CIT(A) that assessee voluntarily attached Note No.16 to the computation of income filed in the return of income and made disclosure of the fact that there is a thin line of difference between what constitutes revenue expenditure and capital expenditure. That it is a highly debatable question in so far as the repair expenditure is concerned. The assessee also placed reliance on the ....
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.... inaccurate particulars of income. He further submitted that the claim of the assessee was bonafide. Mere disallowance of claim does not give a ground to levy the penalty. Ld A.R. also relied on the decision of ITAT dated 30.4.2010 in its own case for assessment year 1993-94 (supra). 27. We have carefully considered submissions of ld representatives of parties and orders of authorities below. We agree with ld CIT(A) that mere disallowance of claim of the assessee does not give a basis for levy of penalty u/s.271(1)(c) of the Act . It is not a case of the department that assessee has claimed the said expenditure for avoiding tax. The assessee placed all relevant facts in the return filed and made its claim bonafide as revenue expenditure. Nothing is available on record to show that the belief of the assessee and the explanation of the assessee were false and inherently impossible. Even an erroneous claim for deduction cannot warrant penalty unless and untilitis proved that the claim is made with dishonest intention. Therefore, we agree with ld A.R. that the case of the assessee is squarely covered by the decision dt .30.4.2010 of the Tribunal in assessee's own case for assessment....