Amit Capital & Securities (P) Ltd. Vs ITO (ITAT Mumbai)
Conclusion: Merely because assessee’s had claimed administrative expenditure which was not acceptable to Revenue, that by itself would not attract penalty under Section 271(1)(c) if there was absence of concealment and / or furnishing of inaccurate particulars of income.
Held: Assessee was a share trading and investment company. AO determined the total income by treating capital gains as business income and it appeared that assessee had claimed all administrative expenses as deduction against long term capital gain which was rejected by him. He also leived penalty u/s 271(1)(c) for wrong claim of expenditure. Assessee had challenged penalty order passed by AO under section 271(1)(c) on the ground that AO had issued vague notice without striking off inappropriate portion in the notice whether penalty had been levied for concealment of particulars of income or furnishing of inaccurate particulars of income, therefore, penalty levied on such vague notice could not survive. It was a settled position of law that mere rejection of claim, made by assessee, would not ipso-facto, result in penalty imposed under section 271(1)(c) as was held also in CIT vs Reliance Petro Products Pvt. Ltd. (2010)(11) SCC 762(Supreme Court). Before penalty could be imposed under Section 271(1)(c), Revenue in terms thereof must be satisfied that assessee had concealed particulars of income or furnished inaccurate particulars of his income. In case, where an assessee makes a complete disclosure of facts it then could not be said to have concealed the particulars of income or furnished inaccurate particulars of income. Thus, mere making a claim for benefit under a particular provision of law would not attract penalty under Section 271(1)(c) of the Act if there was absence of concealment and / or furnishing of inaccurate particulars of income. Thus, the penalty imposed under section 271(1)(c) was directed to be deleted.
FULL TEXT OF THE ITAT JUDGEMENT
The assessee is aggrieved by the impugned order dated 08/02/2017 of the First Appellate Authority, Mumbai, confirming the penalty of Rs.4,30,000/-, imposed under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter the Act) and further holding that the assessee while claiming deduction of administrative expenses to the extent of Rs.13,99,521/- did not furnish any evidence.
2. During hearing, the Ld. counsel for the assessee, Shri Govind Jhaveri, explained that the Tribunal partly allowed the quantum addition (ITA No.1405/Mum/2017), order dated 14/09/2017. It was also pleaded that in the notice issued under section 274 r.w.s 271(1)(c), the relevant limb in the notice has not be struck down by the Assessing Officer. On the other hand, Shri Satishchandra Rajore, Ld. DR, defended the imposition of penalty.
2.1. We have considered the rival submissions and perused the material available on record. Before adverting further, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 14/09/2017.
“The appeal filed by the assessee is directed against the order dated 16- 12-2016 passed by Ld CIT(A)-3, Mumbai and it relates to the assessment year 2006-07. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the disallowance of expenses of Rs.13.87 lakhs as expenses not relating to long term capital gain earned by the assessee. The assessee also seeks direction to assess the Long term capital gains at concessional rate of tax.
2. The assessee is a share trading and investment company. It filed its return of income declaring a total income of Rs.10,25,000/-. The assessing officer determined the total income at Rs.1,03,53,890/- by treating capital gains as business income; disallowing administrative expenses; adding deemed dividend and adding transactions not disclosed in the books. It appears that the assessee had claimed all administrative expenses as deduction against long term capital gain and the same was rejected by the AO. In the appeal filed before Ld CIT(A), the first appellate authority deleted all the additions/adjustments made by the AO. The revenue preferred appeal challenging the order of Ld CIT(A) before the Tribunal. The Tribunal confirmed the order of Ld CIT(A) in respect of all items except that relating to administrative expenses. The Tribunal restored the issue relating to administrative expenses with the following observations:-
“Admittedly, the AO, in the scrutiny assessment order for AY 2005-06 has accepted the expenditure of Rs.9,466/- and allowed the same. However, during the year the total expenditure has gone upto Rs.13,99,521/- which includes salary and allowances of Rs.13,37,196/-. Further, the assessee during the impugned A.Y has purchased the Bombay Stock Exchange Card at a cost of Rs.65,10,000/-. Under these circumstances, the entire expenditure, in our opinion, cannot be allowed as expenditure for earning long term capital gain. However, to maintain corporate status of the assessee, it may require to spend some expenditure. We, therefore, find merit in the submission of Ld Counsel for the assessee that the matter may be set aside to the file of the A.O with a direction to allow reasonable expenditure which may be allowed as revenue expenditure. Accordingly, we restore this issue to the file of the A.O with a direction to determine such reasonable expenditure and allow the same as revenue in nature. The ground raised by the Revenue is accordingly partly allowed for statistical purposes.”
Thus, the assessing officer was directed to determine reasonable expenditure that is required to be incurred for maintaining corporate structure of the assessee and allow the same as revenue expenditure.
3. In the set aside proceedings, the assessee submitted before the AO that it was formed by Ex-president of BSE, who was a Chartered Accountant. It was submitted that salary was paid to the Managing director and a very senior Government officers. It was further submitted that expenses were incurred on Electricity, Telephone, office and depreciation. Accordingly it was submitted that all these expenses should be allowed as business expenditure. The AO, however, allowed expenses relating to filing fee, professional tax, audit fee and bank charges. Accordingly he disallowed following expenses:-
