Section 271(1)(c) Penalty Cannot be Levied Where Issue is Debatable: ITAT

The Income Tax Appellate Tribunal (ITAT), Delhi, deleted the penalty under section 271(1)(c) of the Income Tax Act, holding that such a penalty cannot be imposed when the issue is debatable.

The assessee, Cimmco Ltd., filed a nil income tax return (ITR). The assessing officer reopened the case under section 147 of the Income Tax Act and disallowed Rs 1,04,81,261 claimed as a write-off capital expenditure in the profit and loss account. This included expenses of Rs 72,06,320 towards the export benefits as non-recoverable and Rs 32,72,941 towards the security deposit.

Additionally, the AO also imposed a penalty towards the disallowance under section 271(1)(c) of the Income Tax Act, alleging that the assessee had filed inaccurate particulars.

The CIT(A) also upheld the penalty, observing that the company did not explain the inaccurate furnishing of particulars of income, and the company failed to prove that there was no fraudulent intention.

However, the ITAT said that whether an expense is revenue or capital is a debatable issue, and the penalty under Section 271(1)(c) cannot be levied if the dispute involves debatable legal interpretations.

The Tribunal also explained the difference between a wrong claim and a false claim, stating that an assessee may be punished by the tax department for a false claim. The Tribunal concluded that the AO has failed to prove that the assessee had made a false claim or that the case involves concealment of income or filing inaccurate particulars.

Therefore, the Tribunal directed the AO to delete the penalty levied on the assessee under Section 271(1)(c) of the Income Tax Act.