No Penalty of S. 271(1)(c) if wrong Loss claimed as per Tax Audit report : ITAT

By | March 26, 2019
(Last Updated On: March 26, 2019)
we find that the penalty was initiated on account of loss claimed by the appellant on sale of assets, even though, that particular block of assets had not been exhausted. We do not find any justification to discard the findings reached by the ld. CIT(A) that the assessee had duly disclosed the loss on sale of assets at Rs. 61,21,337/-, being part of administrative expenses and this amount was duly appearing in the schedules forming part of profit and loss account for the year under consideration. The accounts are audited by qualified chartered accountant. In presence of these facts, the ld. CIT(A) has not fallen in error while holding that this was not a case of concealment. However, the fact remains that the assessee had made ineligible claim, for which the bona fide of the assessee stands proved from the fact that as per Form No. 3CD, at item no. 17(a), the auditor has reported that there is no expenditure of capital nature which has been debited to the profit and loss account. Therefore, in our considered opinion, the claim of loss made on the basis of tax audit report cannot be said to be non-bona fide. We have also gone through the decisions relied by the ld. CIT(A) and we find that in the present scenario, the said decisions are found applicable to the case in hand and the distinguishing features given in the grounds of appeal are not found tenable in the eyes of law. It is also worth consideration that at the initial stage of original assessment, the assessee had claim similar loss, which was partly accepted by the Assessing Officer and penalty proceedings initiated at that point of time were also dropped. Therefore, there appear different opinions of revenue authorities at different points of time. In such circumstances, the ld. has rightly following the decision in CIT vs. Reliance Petro Products Pvt. Ltd, 322 ITR 158), where it has been held that “ mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.” Moreover, though the assessee is neither in appeal nor in cross objection, the ld. DR could also not rebut the contention of the assessee made before ld. CIT(A) as well as before us in its submissions that the penalty notice itself was defective having not specifying a particular charge – whether concealment of particulars of income or furnishing of inaccurate particulars thereof. We, therefore, do not find any infirmity in the order of the ld. CIT(A) while deleting the impugned penalty.
RBM Pati Joint Venture Vs DDIT (ITAT Delhi)
 ITA No. 3471/Del/2015
Dated : 03/12/2018
Assessment Year : 2007-08

This appeal is directed by the Revenue against the order of ld.CIT(A)-43, New Delhi dated 31.03.2015 for the assessment year 2007-08 on the following grounds :

1. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting penalty of Rs.25,62,569/- u/s 271(1)(c) of the Income Tax Act, 1961(‘the Act’) imposed by the Assessing Officer.

1 (a). Whether the Ld CIT (A) has erred in relying upon, inter alia, the decision of the Hon ’ble High Court in the case of M/s Reliance Petroproducts [(2010) 322 ITR 158] in deleting the penalty, not appreciating the fact that the ratio of the said case is applicable only in cases where there is a bona fide difference of opinions with regard to admissibility of a claim and not to the cases where the claim of the assessee is patently untenable.

1(b). Whether the LD CIT(A) has erred in holding that it was a case of a bonafide error not amounting to furnishing of inaccurate particulars and that case is covered by the decision in Price Water House Coopers Vs CIT [348 ITR 306 (SC)], not appreciating the fact that the said case did not lay down any general proposition to the effect that penalty is not to be levied in all cases of so-called error.

1(ba). The Ld CIT (A) erred in not appreciating the fact that the decision in the case of Price Water House Coopers turned on the peculiar fact situation involved therein, as, a) the factum of non-allowability of the item was prominently mentioned in the Tax Audit Report and

b) the assessee filed a revised return immediately after the omission came to its notice. As against this, in the present case, the assessee was apparently aware of that the claim of loss was wrong and did not take any suo motu action for correcting the error either at the time of original assessment proceedings or at the time of re-assessment.

1(c). Whether the Ld CIT(A) has erred in ignoring the ratio of the decisions in the cases of Zoom Communications [327 ITR 510 (Del)] and Escorts Finance [328 ITR 44] wherein it has been held that the plea of “oversight” was not acceptable in the era of no-scrutiny assessment.”

2. The brief facts of the case are that the assessee filed return of income at a loss of Rs. 19,22,47,512/-. Assessment order u/s 143(3) was completed on 7.12.2009, whereby the declared loss was reduced to Rs. 16,78,25,520/- by making addition amounting to Rs. 2442 1992/- in the following heads :

Sr. NoParticularsAmount (Rs.)
i)Disallowance under section 40A(2)(b) of the Act43,18,590
ii)Disallowance of taxes paid to expectorate employees5,25,160
iii)Disallowance of provision for doubtful advances made under section 36(l)(vii) of the Act1,94,80,078
iv)Disallowance of doubtful debts and advances written off98,164
Total2,44,2 1,992

Based on the above additions, the AO initiated penalty proceedings u/s 271(1)(c) and issued notice dated 7.12.2009. Pursuant to assessee’s submission made vide letter dated 5.1.2010, the AO dropped the penalty proceedings vide his order dated 7.1.20 10. Thereafter, the Assessing Officer on the basis of some information in his possession, reopened the case vide notice u/s 148 dated 27.3.2012. The AO recorded the following reasons:

“The assessee is a Non-Resident. For the year under reference, the assessment was done u/s 143(3) at loss of Rs.16,78,25,520/-.

The assessee has claimed an expenditure of Rs 61,21,337/ -on account of loss on sale of fixed assets. As this is a capital loss to the company, it should have been added back to the income of the assessee. This resulted in over assessment of loss of Rs 61,21,337/- involving potential tax effect, of Rs 25,59,943/-.

The assessee has claimed an expense of Rs (21517294- 19480078=203722) on account of provision for doubtful advance. As this is a capital loss to the company, it should be disallowed.

The assessee has claimed Rs 45,19,389/- on account of Bank guarantee Commission which as per Act is not an admissible expenditure. This should be disallowed.

In view of the above, I have reasons to believe that income of more than Rs 1 lakh of the assessee company for AY 2007-0 8, has escaped assessment. I am therefore satisfied that it is a suitable case to be reopened for reassessment.

Based on the above reasons, reassessment was completed u/s. 147/148 on 27.05.2013 making an addition of Rs.61,2 1,33 7/- observing as under :

“During the course of assessment the assessee was informed -about the provision section 50 of the income tax Act 1961. Wherein it is provided that the profit or loss of depreciable asset will be assessed only in the situation if the whole of the block of assets is exhausted and there is loss or profit which is to be assessed as such. In the case of assessee the block of assets exists and as per the provision of the Act the loss is not allowable. Therefore the loss claim at Rs 61,21,337/- is liable to be disallowed. The counsel of assessee did not make an objection to it thus an amount of Rs 61,21,337/- is disallowed and added back to the total income of assessee. ”

Based on this addition, the Assessing Officer initiated penalty proceedings u/s. 271(1)(c) of the Act and after considering the explanation of the assessee, a penalty of Rs.25,62,569/- was imposed against the assessee. In appeal, the ld. CIT(A) deleted the penalty vide impugned order. Aggrieved, the Revenue is in appeal before the Tribunal.

3. The learned DR reiterating the grounds of appeal submitted that the ld. CIT(A) was not justified in deleting the penalty ignoring the fact that the decisions relied on by first appellate authority are distinguishable on facts. It was submitted that there was no bona fide on the part of assessee to claim a capital loss as revenue loss. Therefore, the assessee has furnished inaccurate particulars of income and therefore, the Assessing Officer had rightly imposed penalty which has been wrongly deleted by the ld. CIT(A).

4. On the other hand, the ld. AR of the assessee reiterating the detailed submissions made before the ld. CIT(A) supported the impugned order and relied on various case laws as also relied by the ld. CIT(A). He has made extensive arguments on various aspects of the case, such as invalidity of notice specifying no particular charge and the bona fide of assessee in making the claim of loss etc.

5. We have heard the rival submissions and have gone through the entire material available on record. An insight over the penalty order, we find that the penalty was initiated on account of loss claimed by the appellant on sale of assets, even though, that particular block of assets had not been exhausted. We do not find any justification to discard the findings reached by the ld. CIT(A) that the assessee had duly disclosed the loss on sale of assets at Rs. 61,21,337/-, being part of administrative expenses and this amount was duly appearing in the schedules forming part of profit and loss account for the year under consideration. The accounts are audited by qualified chartered accountant. In presence of these facts, the ld. CIT(A) has not fallen in error while holding that this was not a case of concealment. However, the fact remains that the assessee had made ineligible claim, for which the bona fide of the assessee stands proved from the fact that as per Form No. 3CD, at item no. 17(a), the auditor has reported that there is no expenditure of capital nature which has been debited to the profit and loss account. Therefore, in our considered opinion, the claim of loss made on the basis of tax audit report cannot be said to be non-bona fide. We have also gone through the decisions relied by the ld. CIT(A) and we find that in the present scenario, the said decisions are found applicable to the case in hand and the distinguishing features given in the grounds of appeal are not found tenable in the eyes of law. It is also worth consideration that at the initial stage of original assessment, the assessee had claim similar loss, which was partly accepted by the Assessing Officer and penalty proceedings initiated at that point of time were also dropped. Therefore, there appear different opinions of revenue authorities at different points of time. In such circumstances, the ld. has rightly following the decision in CIT vs. Reliance Petro Products Pvt. Ltd, 322 ITR 158), where it has been held that “ mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.” Moreover, though the assessee is neither in appeal nor in cross objection, the ld. DR could also not rebut the contention of the assessee made before ld. CIT(A) as well as before us in its submissions that the penalty notice itself was defective having not specifying a particular charge – whether concealment of particulars of income or furnishing of inaccurate particulars thereof. We, therefore, do not find any infirmity in the order of the ld. CIT(A) while deleting the impugned penalty.

6. In the result, the appeal of the Revenue is dismissed.

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