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Joint Commissioner of Income Tax, New Delhi vs. Airport Authority Of India, New Delhi - (Income Tax Appellate Tribunal) (13 Aug 2021)

When the notice issued by the AO is vague and ambiguous, the penalty proceedings initiated under Section 271(1)(c) of IT Act are not sustainable


Direct Taxation

In facts of present case, on the basis of assessment framed under Section 143(3) of Income Tax Act, 1961, penalty proceedings have been initiated for furnishing of inaccurate particulars of income to the tune of Rs.4,86,99,262 while claiming Research and Development (R and D) expenditure, which the Assessing Officer (AO) has treated to be capital in nature by disallowing the same. Declining the contentions raised by the assessee that none of the inaccurate particulars have been furnished while claiming deduction of Rs.4,86,99,262 on account of R and D expenses and thereby levied the penalty to the tune of Rs.1,65,52,880.

Assessee carried the matter before the learned CIT (A) by way of filing appeal who has deleted the penalty by allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.

Undisputedly, the assessee is a public sector undertaking and maintaining 125 airports comprising 68 operational airports, 25 civil enclaves i.e. Civil Air Terminals at Defense controlled airports and 31 non-services at all civil airports in the country. It is also not in dispute that, the assessee has claimed to have incurred expenditure of Rs.5.41 crores as expenses on R and D. It is also not in dispute that, assessee has set up R and D centre at Hyderabad during the year under assessment. AO treated the payment made for R and D expenditure as part of setting up the said R and D centre at Hyderabad. It is also not in dispute that, the AO treated all the expenditure claimed by the assessee to be capital in nature by allowing an amount of Rs.54,11,029 i.e. 10% as depreciation and made addition of the remaining amount of Rs.4,86,99,262.

Perusal of the order passed by the learned CIT (A) shows that, the learned CIT(A) deleted the penalty on two grounds : (i) that no valid notice under Section 274 of the IT Act has been issued to the assessee so as to inform the assessee as to under which limb of Section 271(1)(c), penalty proceedings have been initiated; and (ii) that disallowances of claim made by the assessee for incurring expenditure on account of R and D does not come under the purview of Section 271(1)(c) of the IT Act and relied upon the decisions rendered by Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd. and CIT vs. SSA's Emerald Meadows.

In view of decisions rendered in the cases of CIT vs. SSA's Emerald Meadows and Pr. CIT vs. Sahara India Life Insurance Company Ltd., present Tribunal is of the considered view that, when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of Section 271(1)(c) of the IT Act the same has been issued, the penalty proceedings initiated under Section 271(1)(c) of IT Act are not sustainable.

Apex Court in case of Reliance Petro Products Pvt. Ltd. held that, "by no stretch of imagination can making an inaccurate claim tantamount to furnishing of inaccurate particulars when none of the information given in the return is found to be incorrect or inaccurate." In the instant case, it was a mere case of difference of opinion taken by the AO. There is no perversity or infirmity in the impugned order passed by the learned CIT (A). Appeal filed by the Revenue is dismissed.


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