• Jun
  • 30
  • 2013

Bonafide claim of assessee for an expenditure to be revenue in nature which in itself is debatable, do not attracts provision of S. 271(1)(c)

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Issue raised by the assessee was debatable and capable of two views. The assessee had an arguable case or had taken a bonafide plea. The assessee had given his explanation and categorically and clearly stated the true and full facts in the return itself.  He did not try to camouflage or cover up the expenses claimed.  It is not uncommon and unusual for an assessee to bonafidely claim a particular expenditure as a revenue deduction and expense but not succeed. Every addition or disallowance made does not justify and mandate levy of penalty for concealment under Section 271(1)(c) of the Act. Levy of penalty is not an automatic consequence when an addition is made by disallowing an expense and by not accepting the interpretation given by the assesse. As stated above, the plea and contention raised by the assessee has to be examined before it is decided whether or not the assessee has been able to bring his case within the four corners of the Explanation.

Explanation 1 clearly stipulates that the penalty can be imposed when the details furnished by the assessee are found to be incorrect, erroneous and false. Merely making a claim which is held as not sustainable under law should not lead to penalization, when the assessee had furnished full details in the return itself and the claim is a debatable, reasonably plausible or may well have been accepted. (See CIT vs. Reliance Petro Product Pvt. Ltd. 2010 322 ITR 158 (SC), CIT vs. Dharampal Premchand Ltd. 2011 329 ITR 572 (Del.), CIT vs. Societex ITA No. 1190/2011 decided on 19.07.2012, by this Court).

In Devsons Logistics Pvt. Ltd. vs. CIT (2010)329 ITR 483 (Del.), it has been held that when a question arises, which is debatable but the claim of the assessee is not finally accepted, penalty under Section 271(1)(c) should not be imposed. Divergent views on legal interpretation of tax provisions have been subject matter of plethora of decisions. It is not necessary that there should be uniformity or consistency of opinion on aspects of law and the assessee must accept interpretation against him, even when a favourable view is credible and tenable. Penalty cannot be imposed because assessee had taken a particular legal stand unless the assessee had not disclosed  facts before the department/authorities and is unable to establish his bonafides on the legal interpretation put forward.

Reference can also be made to CIT vs. Brahmputra Consortium Ltd. 2012 348 ITR 339 and Pramod Mittal vs. CIT ITA No. 67/2012 decided on 11th October, 2012 by the Delhi High Court.

In view of the aforesaid discussion, the question of law is answered in negative and in favour of the appellant assessee and it is held that penalty under section 271(1)(c) of the Act is not justified in respect of Rs. 25,37,521 and Rs.1 ,32,000/-. Penalty for concealment on the said amounts is directed to be deleted. The appeal is disposed of. No costs.

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Source- Shervani Hospitalities Ltd. Vs. CIT, ITA No. 804/ 2011, Date of decision 28.05.2013, Delhi High Court


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