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May, 31st 2013
+                I.T.A. 804 OF 2011

                                       Reserved on: 22nd March, 2013
%                                     Date of Decision: 28th May, 2013

             Through Mr. Ajay Vohra and Ms. Kavita Jha,


            Through  Mr. Kamal Sawhney, Advocate.



       This appeal by the assessee which relates to the assessment year

2001-02, in effect impugns order dated 26th March, 2010, passed by the

Income Tax Appellate Tribunal(tribunal for short) confirming imposition

of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (Act,

for short).     By order dated 19th December, 2011, the following

substantial question of law was framed:-

               "Whether the Income Tax Appellate Tribunal was
               justified in upholding levy of penalty under
               Section 271(1)(c) of the Income Tax Act, 1961?"

2.     While framing the question of law, it was observed that the court

was not framing any question on the issue of limitation as there is a
ITA 804/2011                                          Page 1 of 21
judgment of the Delhi High Court against the assessee, on the said

aspect. It was observed that in case the judgment or ratio is reversed by

the Supreme Court, the assessee would be at liberty to raise the said

question at the time of hearing.

3.        The assessee is a company engaged in hospitality services. For

the assessment year 2001-02, the assessee filed its return declaring loss

of Rs.43,15,328/-. The assessment was completed under Section 143(3)

of the Act, vide order dated 27th February, 2004, at a positive income of

Rs.9,26,510/-.       The Assessing Officer made following additions/

disallowance in the quantum proceedings:

         S.No.              Particulars             Amount
         1.    Loss of closure of South Extension Rs.25,37,521
         2.    Capital Expenditure for interior Rs.1,32,000
         3.    Depreciation on assets purchased Rs. 3,03,433
               from M/s Star Hospitality
         4.    Donations                            Rs. 10,494
         5.    Loss of subsidiary Company          Rs.1,39,595

4.        In the first appeal, the assessee substantially succeeded and most

of the additions/disallowances were deleted. After giving the first appeal

effect, the loss was determined at Rs.34,30,680/- as against loss of

Rs.43,15,328/-. Aggrieved, the Revenue preferred an appeal before the

Tribunal, which was substantially allowed vide order dated 25th April,

2008. The 5 additions mentioned above were upheld by the Tribunal.
ITA 804/2011                                             Page 2 of 21
The order of the Tribunal in the quantum proceedings and the reasoning

given in respect to additional Nos. 1 and 2 are noticed below. The net

loss of the assessee was determined at Rs.4,57,726/-, vide second appeal

effect order dated 17th July, 2008 passed under Sections 254/250 of the


5.     Proceedings under Section 271(1)(c) of the Act were initiated and

vide order dated 29th January, 2009, penalty of Rs.16,44,330/- was

imposed inter-alia observing that the assessee had failed to substantiate

the explanation regarding additions/disallowances made in the

assessment order resulting in reduction of       returned loss.      It was

observed that the losses claimed could not be justified before the

Assessing Officer and the additions had been finally upheld by the

Tribunal. Concealment penalty was upheld in the first appeal by the

Commissioner of Income Tax (Appeals). It was observed that looking at

the facts of the case, the Assessing Officer had imposed minimum

penalty @ 100% of tax payable on the amount concealed and not @


6.      On second appeal before the Tribunal, case law on the subject

was referred to and it was observed that loss of Rs.1,39,595/- suffered by

the subsidiary company upon liquidation claimed in the hands of the

assessee was untenable in law because the subsidiary company was a

separate taxable entity. The assessee had accepted that this was an error
ITA 804/2011                                          Page 3 of 21
or a mistake and it was pointed out that even in the quantum proceedings

this claim was not pressed.    However, the Tribunal observed, that this

error cannot lead to quashing of the entire penalty. On the claim for

donation, it was observed that the assessee had failed to file receipts of

Delhi Fire Service for Rs.500/- and another/third receipt for Rs.4,995/-.

Receipt of Rs.10,000/- issued by Hindustan Benevolent Trust was filed

but the claim was restricted to 50% or Rs.5,000/-, instead of 100%

deduction as claimed. The total income of the assessee having been

computed at a loss, deduction under Section 80G could not be claimed.

Further, the amount involved is small.        Examining the claim for

depreciation of assets of Star Hospitality Pvt. Ltd. which had closed its

restaurant in Nepal, the Tribunal recorded that the assessee had produced

the RBI permission to close the restaurant but there was no evidence to

show and prove that the assets were brought to India and were utilized

for the purpose of assessees business. The said claim of Rs.3,03,433/-

again is not substantial.

7.     The real question pertains to the first two claims i.e. loss on

closure of South Extension Unit of Rs.25,37,521/- and Capital

Expenditure for interior designing of Rs.1,32,000/-.    The two amounts

are interconnected as the expenditure of interior designing was incurred

on the South Extension Unit.

ITA 804/2011                                           Page 4 of 21
8.     The respondent assessee had taken a premises on rent/lease in

South Extension area in New Delhi in the very assessment year but the

restaurant was closed and the operations stopped in the first year itself.

The assessee had claimed that the expenditure incurred in the setting up

the restaurant like flooring, civil and electrical works, alterations,

repairing, wood work, fixtures and furniture etc. should be allowed as

revenue loss. Disagreeing, the Tribunal in the quantum proceedings

observed that the aforesaid loss was a capital loss and not a revenue loss

for the following reasons:-

               "2.3 We have perused the records and considered
               the rival contentions carefully. The assessee
               during the year stated a new restaurant in which
               substantial capital investment had been made in
               the premises taken on lease. As the business was
               closed during the first year itself, the assessee after
               claiming the depreciation, claimed the balance
               amount of capital asset as deduction from the
               income which had been disallowed as a capital
               expenditure, by the A.O. the case of the assessee
               is that these assets could not be removed from the
               leased premises and there was, therefore, no
               salvage value. The Ld. A.R. for the assessee has
               placed reliance on the judgment of Honble
               Supreme Court in case of Madras Auto Service
               (supra) and judgments of Honble High Court of
               Delhi in case of Installment Supplies Pvt. Ltd.
               (supra). It has been held in these judgments that
               the assessee is not the owner of the assets created
               in the leased premises as it belongs to someone
               else. The assessee has only enduring business
               advantage and no advantage in the capital filed and
               therefore, the expenditure is to be allowed as
               revenue expenditure. On careful perusal, we find
               that both the judgments related to period prior to
ITA 804/2011                                               Page 5 of 21
               Assessment year 1988-89 when Explanation (1) to
               Section 32(1) was not on the statute. As per the
               said explanation, capital expenditure on leased
               premises has to be capitalized and depreciation is
               allowable treating the assessee as deemed owner.
               Therefore, from Assessment year 1988-89, the
               capital expenditure in leased premises will have to
               be treated as capital expenditure, which is entitled
               for depreciation and cannot be allowed as revenue
               expenditure. The expenditure is undisputedly,
               capital in nature because it has resulted into
               addition to the profit making apparatus of the
               assessee and resulted into a new source of profit as
               the new restaurant was a new source of income.
               Therefore, even considering the judgments of
               Honble Supreme Court in case of Empire Jute Co.
               (124 ITR 01) in which it has been held that
               expenditure incurred for efficient or more
               profitable working of the business has to be treated
               as revenue expenditure even if it provides some
               enduring advantage provided there is no addition
               to the profit making apparatus or the expenditure
               does not result into new source of income.
               Therefore, the expenditure in this case is no doubt
               a capital expenditure. However, the same was
               used for the purpose of business and, therefore,
               when it is sold or destroyed or discarded or
               demolished, the resulting loss has to be dealt with
               under the provisions of law. We find that there is a
               specific provision u/s 32(1)(iii) inserted w.e.f.
               Assessment year 1998-99 as per which if any asset
               used for the purpose of business on which
               depreciation has been claimed, is sold, discarded,
               demolished or destroyed in the previous year other
               than the previous year in which it was first brought
               into use, the difference between the sale/salvage
               value and the WDV has to be allowed as a
               business loss. This provision is not applicable in
               the case of assessee because the assets in this case
               have to be discarded in the very first year as the
               restaurant was not found viable. Therefore, in our
               view it is capital put by the assessee in the new
               business, which was lost and has, therefore, to be
ITA 804/2011                                            Page 6 of 21
               treated as loss of capital not allowable. This is not
               a case of loss occurring during the actual carrying
               on of the business, which can be allowed as
               business expenditure but a case of capital put into
               the new business being lost as the business not
               found viable. The expenditure has therefore, to be
               disallowed as a loss of capital.          We order
               accordingly. The order of CIT(A) is reserved and
               the disallowance made by the AO is upheld."

9.     The aforesaid reasoning itself discloses that two views were

possible on whether or not the loss in question was revenue or capital in

nature. Two earlier decisions of the Supreme Court in CIT vs. Madras

Auto Service,(1998) 233 ITR 468 SC and Installment Supply Company

vs. CIT (1984)149 ITR 52 were distinguished observing that they were

inapplicable in view of introduction of Explanation 1 to Section 32(1)

and Section 32(1)(iii) of the Act. The assessee had claimed that they had

taken a premise on rent/lease and during the very first year of business

itself the lease was surrendered.        Therefore, no enduring business

advantage accrued and no new profit making asset came into existence.

Reliance placed by the assessee on Empire Jute Company v.

Commissioner of Income Tax, (1980) 124 ITR 01 was not accepted.

10.    In the impugned order relating to penalty under Section 271(1)(c),

the Tribunal has again adopted the said reasoning and has observed as


               "In the appeal of the revenue to the tribunal, the
               Tribunal has categorically given a finding that the
               write off under the revenue head was not
ITA 804/2011                                             Page 7 of 21
               permissible in view of the specific provision u/s
               32(1)(iii) of the Act. The Tribunal has also
               categorically given a finding that the decision
               relied upon by the Ld. CIT(A) for deleting the
               disallowance relating to the period prior to the
               Assessment Year 1988-89 when the Explanation
               (1) to Section 32(1) was not on the statute. In the
               course of penalty proceedings, the assessee has
               mentioned that the claim was based upon some
               legal lines of reasoning and it cannot be said to be
               as absurd claim. When there is specific provision
               in the statute, and when the accounts of the
               assessee are under audit, non-application of a
               specific provision cannot give any leverage for
               bona fides to the assessee. Here even though the
               assessee has given an explanation in the penalty
               proceedings, the explanation as given by the
               assessee cannot be substantiated by any form of
               hair splitting or legal jugglery. Besides this, it is
               also noticed that the assessee has earlier mentioned
               that it had brought in plant & machinery of a value
               of Rs.3,12,956/- on the liquidation of Star
               Hospitality Pvt. Ltd., Nepal which machinery had
               been used in the Rodeo South Extension
               Restaurant. However the plant & machinery found
               to have been written of is of a value of Rs.47,166/-
               . How can this happen? What happened to the
               balance of plant & machinery? The assessee was
               able to bring back plant & machinery on the
               liquidation of subsidiary in Nepal as per their letter
               to RBI but on the closure of a unit in South
               Extension Delhi the assessee is not able to use the
               plant & machinery and has to abandon the same is
               too far fetched claim to substantiate any bona fide.
               Furniture and fixtures from Star Hospitalities Pvt.
               Ltd., Nepal is of a value of Rs.36,618/- while what
               is written of is Rs.19,978/-.

               Coming to the issue of building on lease, the Ld.
               CIT(A) in the appellate order in the quantum
               proceedings has termed the same to include the
               partition and fixing of wooden fixtures, wooden
               floor, false ceiling, frame work, sanitary and
ITA 804/2011                                              Page 8 of 21
               drainage. In the letter addressed to the RBI in
               respect of bringing back the movable assets more
               specifically the letter dated 14.06.2002 an amount
               of Rs.9 lacs has been shown as wood/planks
               removed from the building on rent. If such items
               can be removed from the building on rent in Nepal
               and be used in Rodeo South Extension as claimed
               by the assessee, it shows that it lease such items
               were dismentable. Then how can it be said that the
               total amount shown under the building on lease
               had to be abandoned. Thus on all these counts the
               claim of the assessee lacks bonafides and
               consequently the explanation as given by the
               assessee being not substantiated, the penalty as
               levied by the A.O. and as confirmed by the Ld.
               CIT(A) is upheld."

11.    Similar reasoning has been given with regard to expenditure

incurred for interior designing i.e. Architect fee and it was observed that

the expenditure, was in the nature of capital and not revenue

expenditure. The expenditure was pre-commencement expenditure.

12.    With reference to case law relied by the assessee, it was observed

as under:

               "The decisions as quoted by the Ld. A.R. of
               Honble Jurisdictional High Court and the
               coordinate benches of this Tribunal would not
               come to the rescue of the assessee in so far as in all
               those cases, it has been held that where there is
               difference of opinion for allowing or disallowing
               the expenditure between the assessee and the A.O.,
               it cannot be said that the assessee had intention to
               conceal its income. In all those cases, the assessee
               had given all the particulars of expenditure and the
               income and had disclosed all the facts to the A.O.
               In the present assessees case, the facts itself are
               missing. In the course of assessment proceedings,
               the A.O. has asked for evidences, have not been
ITA 804/2011                                              Page 9 of 21
               produced nor has the assessee been able to
               substantiate its claim even in the penalty
               proceedings or in the appellate proceedings. The
               assessee has not been able to even explain the
               circumstances in which it has claimed the
               expenditure which have been disallowed by the
               A.O. In these circumstances, the bona fides of the
               assessee have not been proved and we are of the
               view that the decision of the Honble Jurisdictional
               High Court and the coordinate benches of this
               Tribunal has referred to by the assessee, do not
               help the assessee. In these circumstances, the
               appeal of the assessee is dismissed."

13.    The short question is whether levy of penalty for concealment is

as per law. Quantum and penalty proceedings are distinct and separate.

Findings recorded in the quantum proceedings are germane and relevant

but it does not follow that every addition justifies and compulsorily

mandates imposition of penalty. Subject matter or the core question in

the quantum or assessment proceedings is computation of correct income

as per the Act and the subject matter of the penalty proceedings is the

conduct of the assesse i.e. concealment or furnishing of inaccurate

particulars which has resulted in additions in the quantum proceedings.

Mens rea is not required or necessary to impose penalty for concealment

but an assessee can escape penalty when he can show and establish that

his case falls within four corners of the exclusion provided in

Explanation 1 applicable to the said section. Section 271(1)(c) and the

Explanation 1 read:-

ITA 804/2011                                           Page 10 of 21
                "271. Failure to furnish returns, comply with
          notices, concealment of income, etc.-(1) If the Assessing
          Officer or the Commissioner (Appeals) or the Commissioner
          in the course of any proceedings under this Act, is satisfied
          that any person-
          (c) has concealed the particulars of his income or furnished
          inaccurate particulars of such income, he may direct that such
          person shall pay by way of penalty."
          "Explanation 1- Where in respect of any facts material to the
          computation of the total income of any person under this
      (A)       Such person falls to offer an explanation or offers an
          explanation which is found by the Assessing Officer or the
          Commissioner (Appeals) or the Commissioner to be false, or
      (B) Such person offers an explanation which he is not able to
          substantiate and fails to prove that such explanation is bone
          fide and that all the facts relating to the same and material to
          the computation of his total income have been disclosed by
          Then, the amount added or disallowed in computing the total
          income of such person as a result thereof shall, for the
          purposes of clause (c) of this sub-section, be deemed to
          represent the income in respect of which particulars have
          been concealed.

14.     Thus penalty under Section 271(1)(c) is imposed when an

assessee conceals his income or furnishes inaccurate particulars. In terms

of the Explanation, we have to examine whether the case falls within the

two limbs viz. sub-clause (A) or (B) and the effect thereof. Clause A

applies when an assessee fails to furnish any explanation or when an

explanation is found to be false. In respect of the two additions being

examined, the assessee had furnished an explanation and the explanation

has not been found to be factually incorrect or false. The fact that the

expenditure was incurred and spent by the assessee is not disputed or

denied but the claim of the assesee that it should be treated as revenue
ITA 804/2011                                                Page 11 of 21
expense has been held to be a wrong claim. It is a case where the

assessee was not been able to substantiate the claim. The explanation

given by him has not been accepted on legal grounds. Sub-clause (B) to

the Explanation is applicable and we have to examine whether two

conditions; (i) the assessee has been able to show his explanation was

bona fide and (ii) he had furnished facts and material relating to the

computation of his income had been disclosed. Onus on establishing that

the assessee satisfies the two conditions is on him i.e. the assessee. We

will examine the second condition first.

15.    In the notes of accounts filed with the return, the assessee had

made the following declaration:

               "4.      The Rodeo restaurant situated at South
               Extension, New Delhi has been closed down with
               effect from 31 March 2001 on account of
               continuing poor financial health. Amount of
               deferred revenue expenses of Rs.7,73,984 carried
               in the Balance Sheet in respect of the Unit, which
               was to be written off over a period of five years as
               per the provisions of the Income Tax Act 1961 has
               been fully written off during the year.

               The restaurant unit was in rented building, hence
               the written down values as on 31st March 2001 of
               Building on Lease and few minor items of other
               assets amounting to Rs.25,37,521 has been shown
               as loss due to closure of unit."

16.    This was in reference to the entry in the profit and loss account

where under the head ,,Expenditure loss of wholly owned subsidiary and

ITA 804/2011                                            Page 12 of 21
closure of unit was specifically marked or indicated. The explanation as

claimed also referred to note No. 4. Thus, the assessee in its return of

income or the profit and loss account had not concealed and tried to

camouflage the nature of loss that it was loss on account of wholly

owned subsidiary and on closure of the unit. We say so with clarity and

duly note that the assessee had come clean and had narrated and stated

the facts and material. There is nothing in the penalty order or the

appellate orders to negate the said admitted position. The second

condition is thus satisfied.

17.    The second aspect is whether the explanation or justification for

the claim made by the assessee was bona fide. This requires examination

of the merits of the claim and whether or not the claim made was bona

fide i.e. had legal basis or foundation on which it could be made and was

justified or was a mere pretense or make belief.

18.    Whether or not expenditure incurred           on    renovation or

improvement or repairs on the leasehold premises can be allowed and

treated as revenue expenditure, has been elucidated in several cases.

There are several cases in which the said claim has been allowed. It is

the contention of the assessee that Explanation 1 to Section 32 of the Act

applies to expenditure on property on lease or with right to occupy

which otherwise is capital expenditure. Reliance is placed on CIT vs.

EDC Electronic Data Systems Pvt. Ltd. (2012) 211 Taxman 133 (Del),
ITA 804/2011                                          Page 13 of 21
where the High Court has recorded that the Tribunal had accepted the

plea of the assessee that the expenditure falling under the head ,,current

repairs would be covered under the head ,,revenue expenses.            The

tribunal had observed that Explanation 1 to Section 32 would come into

play when the expenditure otherwise was capital in the nature and

depreciation had been claimed.       We are not required to go into the

correctness of the said view in the present case, but only notice that two

views on the question were possible even after introduction of

Explanation 1 to Section 32. We have noticed above that the Tribunal in

the quantum proceedings has observed that earlier ratio expounded in

Madras Auto Service (supra) and Installment Supply Co. (supra) was in

favour of the assessee. We note that in the case of EDC Electronic Data

Pvt. Ltd. (supra), the appeal filed by the Revenue was dismissed

observing that the Tribunal had observed that the assessing Officer had

partly allowed and permitted deduction to the extent of Rs.70 lacs

approximately under Section 37 of the Act. The Tribunal had remitted

the matter to the lower authorities to the extent of Rs.2.75 crores for re-

examination. Similarly in CIT vs. Citi Financial Consumer Finance

(2011) 335 ITR 29 (Del.), a Division Bench of this Court dismissed the

appeal of the Revenue and treated expenditure of Rs.1.52 crores on

leasehold improvements as revenue in nature and did not accept the plea

of the Revenue that the expenditure should be capitalized.             The
ITA 804/2011                                          Page 14 of 21
expenditure was incurred on civil work, laying cables, flooring, wall

finishing etc. Earlier in CIT vs. Hi Line Pens (P) Ltd. [2008] 306 ITR

182 (Del.), another Division Bench of this Court made specific reference

to Explanation 1 to Section 31(1) and Section 30(a)(i) and the word

,,current repairs. It was observed that the expenditure under the head

,,current repairs should be allowed as revenue deduction as by very

nature tenancy right is for a limited period and does not create any asset.

The question was answered in favour of the assessee and against the

Revenue. In CIT vs. Escorts Finance Ltd. (2006) 205 CTR 574 (Del.),

yet again expenditure incurred on carrying out repairs to make the

premises workable, to replace glasses etc. was treated as a revenue

expense. The expenditure included polishing of floor, wooden paneling

etc.   Reference in this regard may also be made to decisions of the

Madras High Court and the Punjab and Haryana High Court in CIT vs.

Ayesh Hospitals Pvt. Ltd. 2007 292 ITR 266 (Mad.) and CIT vs. Porrits

& Spencer (A) Ltd. (2002) 257 ITR 49 (P&H).

19.    We have extensively referred to these judgments, only to show

that the 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
ITA 804/2011                                          Page 15 of 21
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.

20.    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 Karan

Raghav Exports vs. CIT (2012)349 ITR 112(Del.), it has been observed

as under:-

               "14. On the second aspect, we record that a wrong
               deduction claimed can amount to furnishing of
               incorrect particulars. However, that is not the issue
ITA 804/2011                                            Page 16 of 21
               in question. The issue in question is whether the
               appellant has been able to discharge the onus under
               Explanation 1 to Section 271 and show that the
               claim made by them or the explanation offered
               with regard to the claim made was bona fide and
               that the facts relating to the same and material for
               computation of the total income had been
               disclosed. These are two facets of clause (B) to
               Explanation 1. As far as disclosure of facts is
               concerned, this is clear from the note, which was
               attached with the return itself. We have quoted the
               relevant portion of the note above. Full and correct
               facts have been stated in the said note. The other
               question is whether the claim made was palpably
               wrong and legally untenable or a debatable and
               plausible claim on which the assessee did not
               succeed on legal interpretation. We have examined
               the nature of the claim made and the findings
               recorded by the High Court in their order dated 1st
               November, 2010. The claim made by the appellant
               may have been rejected, but it cannot be said that
               the same was not plausible or legally tenable. This
               aspect has been discussed above and it has been
               held that the claim made was bona fide. Regarding
               the legal opinion in writing, it is not mandatory for
               a person to obtain legal opinion in writing.
               Assessees do take legal opinion and in the present
               case the return of income was duly audited. Claim
               for depreciation is a technical claim based on
               interpretation of legal provision. Legal opinion, in
               such cases, is frequently given by Chartered
               Accountants to help the company to prepare its
               return of taxable income. In the present case, there
               is no allegation that the quantum of depreciation
               claim was incorrectly computed. The note itself
               indicates that it is written by a professional."

21.    Similarly Delhi High Court in CIT vs. Zoom Communication Pvt.

Ltd. (2010) 327 ITR 510 (Del.) has observed:

ITA 804/2011                                            Page 17 of 21
               "The proposition of law which emerges from
               this case, when considered in the backdrop of
               the facts of the case before the court, is that so
               long as the assessee has not concealed any
               material fact or the factual information given
               by him has not been found to be incorrect, he
               will not be liable to imposition of penalty
               under section 271(1)(c) of the Act, even if the
               claim made by him is unsustainable in law,
               provided that he either substantiates the
               explanation offered by him or the explanation,
               even if not substantiated, is found to be bona
               fide. If the explanation is neither substantiated
               nor shown to be bona fide, Explanation 1 to
               section 271(1)(c) would come in to play and
               the assessee will be liable to for the prescribed

               The assessee before us is a company which
               declared an income of Rs. 1,21,49,861 and
               accounts of which are mandatorily subjected
               to audit. It is not the case of the assessee that
               it was advised that the amount of income-tax
               paid by it could be claimed as arevenue
               expenditure. It is also not the case of the
               assessee that deduction of income-tax paid by
               it was a debatable issue. In fact, in view of the
               specific provisions contained in section
               40(a)(ii) of the Act, no such advice could be
               given by an auditor or other tax expert. No
               such advice has been claimed by the assessee
               even with respect to the amount claimed as
               deduction on account of certain equipment
               having become useless and having been
               written off. As noticed earlier, the Tribunal
               was entirely wrong in saying that section
               32(1)(iii) of the Act applies to such a
               deduction. It was not the contention before us
               that claiming of such a deduction under
               section 32(1)(iii) was a debatable issue on
               which there were two opinions prevailing at
               the relevant time. In fact, the assessee did not
               claim, either before the Assessing Officer or
ITA 804/2011                                         Page 18 of 21
                   before the Commissioner of Income-tax
                   (Appeals) that such a deduction was
                   permissible under section 32(1)(iii) of the Act.
                   No such contention on behalf of the assessee
                   finds noted in the order of the Tribunal. Thus,
                   it was the Tribunal which took the view that
                   section 32(1)(iii) could be attracted to the
                   deduction claimed by the assessee. It is also
                   not the case of the assessee that it was under a
                   bona fide belief that these two amounts could
                   be claimed as revenue expenditure. The
                   assessee, in fact, outrightly conceded before
                   the Assessing Officer that these amounts
                   could not have been claimed as revenue
                   deductions. The only plea taken by the
                   assessee before the income-tax authorities was
                   that it was due to oversight that the amount of
                   income-tax paid by the assessee as well as the
                   amount claimed as deduction on account of
                   certain equipment being written off could not
                   be added back in the computation of income."

22.      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

ITA 804/2011                                           Page 19 of 21
department/authorities and is unable to establish his bonafides on the

legal interpretation put forward.

23.    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.

24.    Recently again, the Supreme Court in the case Price Water House

Coopers Pvt. Ltd v. CIT (Supreme Court) (2012) 348 ITR 306 (SC) has

observed as under:

           "...The contents of the Tax Audit Report suggest
           that there is no question of the assessee
           concealing its income. There is also no question of
           the assessee furnishing any inaccurate particulars.
           All that happened in the present case is that through
           a bona fide and inadvertent error failed to add the
           provision for gratuity to its total income. This can
           only be described as a human error which we are all
           prone to make. The caliber and expertise of the
           assessee has little or nothing to do with the
           inadvertent error. That the assessee should have
           been careful cannot be doubted, but the absence of
           due care, in a case such as the present, does not
           mean that the assessee is guilty of either furnishing
           inaccurate particulars or attempting to conceal its
           income. Consequently, given the peculiar facts of
           this case, the imposition of penalty on the assessee is
           not justified."

25.    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
ITA 804/2011                                           Page 20 of 21
the said amounts is directed to be deleted. The appeal is disposed of. No


                                             (SANJIV KHANNA)

                                            (SIDDHARTH MRIDUL)
MAY 28th, 2013

ITA 804/2011                                         Page 21 of 21
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