Western India Regional Council of
The Institute of Chartered Accountants of India

(Setup by an Act of Parliament)

September 24, 2019

CA. Paras K. Savla, CA. Hemant R. Shah


M/s Nortel Networks India Pvt. Ltd. Vs DCIT (ITAT Delhi)
Penalty U/s 271(1)(c) cannot be levied if more than one legal view is possible:
(Appeal No.: ITA No. 1510/Del/2016, Date of Order : 07/08/2019, Assessment Year: 2005-06)
Courts : All ITAT (6300) ITAT Delhi (1441)

The assessee has offered Explanation as why the transaction of loss of security was claimed as business loss. This Explanation has not found to be false by the Assessing Officer (AO). Further, the assessee substantiated the Explanation by way of filing relevant documents in relation to the transaction.

The Hon. Tribunal opined that the assessee has disclosed all the facts material to the computation of the income in the assessment proceedings. It is not the requirement of the law that all the facts material to the computation of income have to be disclosed in the Return of Income only as there are no relevant columns in the return of income form for disclosing all the facts of the case.

During the assessment proceedings, the Assessing Officer asked queries in respect of the claim of loss of security deposit claim and the assessee submitted all the detailed information in respect of the transaction and no facts have been found to be wrong by the AO. The issue involved is only of the interpretation of the transaction of loss of security. According to the assessee, it was in the nature of revenue expenditure whereas according to the AO, it is capital loss, not allowable against the business profit. The issue raised was where similar advances forfeited have been held to be revenue expenditure.

There is no doubt that there were two opinions, whether the advances written off could be considered as revenue expenditure or capital expenditure.

Hon’ble High Court of Punjab and Haryana in the case of Commissioner of Income Tax versus Amtek Auto Limited (supra) has held that “merely because assessee claimed expenditure as revenue, which was held as capital by the Assessing Officer, penalty for concealment could not be imposed where assessee discloses nature of transaction”.

In the case of CIT vs. Electrolux Kelvantro Ltd. (supra), Hon’ble Delhi High Court held that where the issue involved is debatable and not free from doubt, no penalty can be levied.

In view of the foregoing discussion and respectfully following the decisions of the Hon’ble High Court, The Hon. Tribunal took a view and accordingly held that Explanation 1 of 271(1) is not attracted in the case of the assessee for levy of penalty U/s 271(1)(c) of the Act.