TaxTMI 
TaxTMI 
2026 (5) TMI 1123
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.... 2. Common Facts are such that the assessee is a company engaged in the business of Business Process Outsourcing (BPO), clearing business and acting as custodian of securities. However, during all the years under consideration, it was consistently noted by the Assessing Officer that the assessee could not carry out any business activity. The returns of income for the relevant assessment years were filed declaring losses or nil income. The cases were selected for scrutiny under CASS and statutory notices under sections 143(2) and 142(1) were issued from time to time. In response, the assessee furnished certain details and explanations, though in some years no effective compliance was made. A consistent feature emerging from the record is that the assessee itself admitted, as noted by the Assessing Officer, that its office premises, assets, books and records had been taken over or seized by Reliance Capital Ltd. and Quant Capital Pvt. Ltd. Further, it was also noted that no bank transactions were carried out in certain years and there was complete absence of business operations. 3. Despite the above position, the assessee claimed depreciation on plant and machinery and also clai....
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....te being aware of the fact that it was not carrying out any business activity and was not in possession of assets. In A.Ys. 2017-18 and 2018-19, the Assessing Officer further held that the case fell within the category of "misreporting of income" as per section 270A(9), particularly on account of claiming expenditure without substantiating the same with evidence. Accordingly, penalties were levied at 100% of tax sought to be evaded under section 271(1)(c) for A.Ys. 2015-16 and 2016-17 and at 200% of tax payable on under-reported income under section 270A for A.Ys. 2017-18 and 2018-19. 6. Aggrieved by the penalty orders, the assessee carried the matter in appeal before the learned CIT(A). The assessee reiterated its submissions and contended that there was no concealment or furnishing of inaccurate particulars and that the claims were bona fide and based on the books of account. The learned CIT(A), however, confirmed the penalty orders for all the years. It was observed that the assessee had claimed depreciation and expenses despite absence of business activity and lack of evidence regarding ownership and use of assets. The appellate authority also noted that similar disallowance....
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....er concealed the particulars of income nor furnished inaccurate particulars thereof and therefore the basic conditions for levy of penalty under section 271(1)(c) are not satisfied. III. On the facts and in the circumstances of the case and in law, The Commissioner of Income tax Appeals (NFAC) has erred in confirming the penalty merely on the basis of disallowance of depreciation and foreign travelling expenses without appreciating that a mere disallowance of a claim does not ipso facto attract penalty under section 271(1)(c). IV. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax Appeals (NFAC)has erred in law and on facts in holding that the claim of depreciation amounted to furnishing of inaccurate particulars without appreciating that the claim was made on the basis of assets duly reflected in the books of account and was a bona fide claim based on the Appellant's understanding of law. V. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax Appeals (NFAC) has erred in confirming the penalty in respect of foreign travelling expenses, without appreciati....
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....lars of income nor furnished inaccurate particulars thereof and therefore the basic conditions for levy of penalty under section 271(1)(c) are not satisfied. III. On the facts and in the circumstances of the case and in law, The Commissioner of Income tax Appeals (NFAC) has erred in confirming the penalty merely on the basis of disallowance of depreciation without appreciating that a mere disallowance of a claim does not ipso facto attract penalty under section 271(1)(c). IV. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax Appeals (NFAC) has erred in law and on facts in holding that the claim of depreciation amounted to furnishing of inaccurate particulars without appreciating that the claim was made on the basis of assets duly reflected in the books of account and was a bona fide claim based on the Appellant's understanding of law. V. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax Appeals (NFAC) has failed to properly appreciate and apply the ratio laid down by the Hon'ble Supreme Court in the case of CIT vs. Reliance Petro products Pvt. Ltd....
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....he case and in law, the learned Commissioner of Income tax Appeals (NFAC) has erred in law and on facts in holding that the claim of depreciation amounted to furnishing of inaccurate particulars without appreciating that the claim was made on the basis of assets duly reflected in the books of account and was a bona fide claim based on the Appellant's understanding of law. V. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax Appeals (NFAC) has erred in confirming the penalty in respect of Other expenses, without appreciating that the claim was duly recorded in the books of account and supported by primary details and that at best the disallowance was on account of alleged insufficiency of evidence, which cannot be equated with furnishing of inaccurate particulars. VI. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax Appeals (NFAC) has failed to properly appreciate and apply the ratio laid down by the Hon'ble Supreme Court in the case of CIT vs. Reliance Petro products Pvt. Ltd. (322 ITR 158), wherein it has been held that making an unsustainable claim in l....
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....d in law and on facts in holding that the claim of depreciation amounted to furnishing of inaccurate particulars without appreciating that the claim was made on the basis of assets duly reflected in the books of account and was a bona fide claim based on the Appellant's understanding of law. V. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax Appeals (NFAC) has erred in confirming the penalty in respect of Other expenses, without appreciating that the claim was duly recorded in the books of account and supported by primary details and that at best the disallowance was on account of alleged insufficiency of evidence, which cannot be equated with furnishing of inaccurate particulars. VI. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax Appeals (NFAC) has failed to properly appreciate and apply the ratio laid down by the Hon'ble Supreme Court in the case of CIT vs. Reliance Petro products Pvt. Ltd. (322 ITR 158), wherein it has been held that making an unsustainable claim in law does not amount to furnishing inaccurate particulars of income. VII. O....
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....itiated in law on account of a fundamental defect in the notice issued under section 274 read with section 271(1)(c), inasmuch as the Assessing Officer has not specified the exact limb under which the penalty is proposed, i.e., whether for concealment of income or for furnishing inaccurate particulars of income. It was submitted that the notice dated 24.02.2020 is in a standard format and does not clearly indicate the specific charge, thereby failing to make the assessee aware of the precise allegation. It was further submitted that even in the subsequent show cause notice dated 27.02.2021 and other communications, no such clarification has been provided, resulting in ambiguity in the entire penalty proceedings. According to the learned AR, such ambiguity goes to the root of the matter and renders the penalty proceedings invalid, as the assessee has been deprived of a fair opportunity to respond to a specific charge. It was thus contended that in absence of a clear and unambiguous charge at the stage of initiation, the penalty levied under section 271(1)(c) is liable to be quashed. 11. The learned Departmental Representative (DR), on the other hand, strongly supported the orders....
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....ing the same but also in initiating and levying penalty. We have carefully considered the said contention. In our considered view, the issue of allowability of depreciation in the quantum proceedings cannot be mechanically extended to justify levy of penalty. It is an undisputed position that the assessee has disclosed the fixed assets in its financial statements and the claim of depreciation has been made on such disclosed block of assets. Under the scheme of section 32, once an asset enters the block of assets and has been put to use in an earlier year, depreciation continues to be allowable on the written down value of the block, subject to statutory conditions. Therefore, the claim of depreciation, even if ultimately found to be not allowable on the peculiar facts of the case, cannot be regarded as a false claim or a claim made by suppressing particulars of income. The entire factual basis of the claim was duly disclosed in the return of income and accompanying financial statements. Thus, the disallowance of depreciation, at best, gives rise to a difference of opinion or legal inference in the assessment proceedings and does not, by itself, establish that the assessee has furni....
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....irs and maintenance, rates and taxes, office expenses, petrol, legal and professional fees, printing and stationery, and travelling expenses. A substantial component is legal and professional fees, ROC filing fees, office expenses, printing and stationery, and similar outgoings which, by their very nature, are connected with preservation of corporate existence, statutory compliance, maintenance of records, legal representation, and keeping the company in readiness. Merely because there was no active revenue-generating business during the year, it does not follow that every such claim, if disallowed in quantum, becomes a false claim attracting penalty. 19. The penalty provision requires a higher threshold than a mere rejection of claim. No finding has been brought on record that these items were fictitious, bogus, or unsupported by primary entries in the books. Even the Assessing Officer himself disallowed only 50% of the expenses on an ad hoc basis, which itself shows that the matter was one of estimation and assessment of allowability rather than discovery of concealment or falsity. Such an ad hoc disallowance cannot ordinarily form a sound foundation for levy of penalty. 20....
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....made on the block of assets, the claim could not be characterised as a false claim. There is no material to show any suppression of facts, false entry, or non-disclosure. Therefore, the essential ingredients for levy of penalty under section 270A on the footing of misreporting are absent. Accordingly, the penalty levied for A.Y. 2017-18 is directed to be deleted in full. A.Y. 2018-19 26. For A.Y. 2018-19, the penalty has been levied in respect of depreciation of Rs. 18,39,539/-, other expenses of Rs. 1,47,324/- and deduction on account of written off of Rs. 26,00,171/-. 27. So far as the other expenses of Rs. 1,47,324/- are concerned, the break-up placed before us shows audit fees of Rs. 20,000/-, interest expenses of Rs. 30,660/-, ROC filing fees of Rs. 2,094/-, rates and taxes of Rs. 12,330/-, office expenses of Rs. 21,240/- and legal and professional fees of Rs. 61,000/-. These are, in substance, routine and compliance-oriented expenditures. Such expenses may well be incurred even where the company has no active turnover, for the purpose of maintaining statutory status, legal compliance, office administration, and corporate survival. Their disallowance in assessment can....