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2015 (11) TMI 991 - ITAT CHENNAI

2015 (11) TMI 991 - ITAT CHENNAI - TMI - Penalty u/s. 271(1)(c) - disallowance of the loss claimed - Held that:- A plain look at the profit and loss account shows that statutory auditor has opined that the assessee has incurred loss for the year ended on 31.03.2010. There cannot indeed be any quarrel with this proposition, but then this Auditors Report does not deal with the provisions of Income Tax Act. As per Income Tax Act expenditure incurred during pre-commencement period cannot be allowed .....

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did not deal with this aspect at all. One can perhaps even understand ignorance about a legal provision, but once the assessee is on record not only being aware about this provision but also preparing the income tax return in the light of the said provision, there cannot be any justification about assessee ignoring the clear mandate of the provision. Such an action on the part of the assessee, in our considered opinion, cannot be said to be bonafide. In our humble understanding, the explanation .....

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s during the relevant financial year under consideration. The Assessing Officer is of the view that the expenditure is not based on any sound reason as the assessee was fully aware of the facts that it is not revenue expenditure when it had filed its original return of income. Therefore, it cannot be said that the assessee discovered any omission or wrong statement subsequent of filing of original return of income on 14.10.2010. Being so, it cannot be believed that the assessee chose to revise i .....

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less approve, this plea of the assessee that the assessee as bonafide in claiming the expenditure. In our opinion levy of penalty by Assessing Officer u/s 271(1)(c) of the Act is justified and accordingly, we reverse the order of the Commissioner of Income Tax (Appeals) and restore that of the Assessing Officer. - Decided in favour of revenue - I.T.A.No.243/Mds/2015 - Dated:- 31-7-2015 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER For The Appellant by : Shri. .....

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case are that the assessee filed the return of income on 14-10-2010 declaring Nil income which was revised subsequently on 18-03-2011 admitting a loss of C1,23,51,488/- after adjusting the notional income of C4,76,517/- computed on account of restatement of foreign currency loan liability. The case was selected for scrutiny and the assessment was completed under Section 143(3) of the Act, disallowing the loss claimed by the assessee and assessed the income at C4,76,517/-. The Assessing Officer .....

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inaccurate particulars of income. The Assessing Officer has not considered the submission of the assessee and levied a penalty of C39,63,854/- which was 100% of the tax sought to be evaded, had the expenditure claimed by the assessee in the revised Return of Income been allowed. Aggrieved by the order of the Assessing Officer made u/s.271(1)(c) of the Act dated 26.09.2013. Against this, the assessee carried the appeal before the Commissioner of Income Tax (Appeals). 4. The Commissioner of Incom .....

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e of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier: Provided that where the return relates to the previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid .....

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income, the assessee has claimed a loss of C1,25,30,730/-. Therefore, it can be safely stated that the omission or the wrong statement based on which the assessee chose to revise by filing a revised return is the claim of loss of C1,25,30,730/- which was in turn based on the expenditure. How was the loss arrived? In this regard, the assessee submitted before the CIT (Appeals) that it filed a revised return claiming loss, on account of expenditure( administrative expenditure and finance charges) .....

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wn to it, the assessee filed a revised return claiming the very same expenditure to be 'revenue'. 6. The ld. Departmental Representative further submitted that the original return of income has been filed by the assessee within the time allowed due date for filing return of income under section 139(1) of the Act. By that time, the accounts have been finalized and audit of the accounts was also over. Therefore, there could be no change in the facts and figures, be it the profit and loss a .....

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ime of filing of original return of income, the assessee was fully aware of the correctness and completeness of the information furnished in the return of income. The assessee chose to file a revised return of income based on the same set of facts and figures, profit and loss account and the balance sheet as declared in the original return of income, but claiming loss, on account of expenditure. The very act of filing a revised return of income claiming loss as against 'Nil' income in th .....

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and should not have been made in the first place. 7. The ld. Departmental Representative further contended that the CIT(Appeals) in his order referred to the reliance of the ld. Authorised Representative for assessee on the decision of the Jurisdictional High Court in the case of CIT vs. M/s. Gem Granites (Karnataka) in Tax Case (Appeal) No.504 of 2009 dated 12.11.2013 wherein it was held that for sustaining penalty, the bonafide explanation of the assessee must be looked into, so that the contu .....

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the revised return of income based on the very facts and figures which were existing when the assessee files the original return of income. Consequently, in this case penalty u/s 271(1)(c) was attracted and it was prayed that the order of the Assessing Officer be upheld. 8. On the other hand, the ld. Authorised Representative for assessee relied on the order of the Commissioner of Income Tax (Appeals) and submitted that the expenditure claimed by the Assessee was disallowed only on account of di .....

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ure, which claim was not accepted that by itself would not attract penalty under Section 271(1)(c) of the Act. The Assessee had filed the Return of Income claiming loss on account of expenditure incurred during the year as revenue expenditure allowable under Section 30 to 37 of the Income Tax Act, as the assessee has already taken steps to commence its activities and also the expenses are mainly comprising of interest payment to the bank of C1,25,30,730/- on the loan borrowed and other regular a .....

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lty proceedings. The bare fact that it was held in assessment proceedings that the assessee concealed its income cannot be made the basis of the conclusion that he had been guilty of deliberately concealing particulars of its income. Before the assessee is held liable for concealing the particulars of income or furnishing inaccurate particulars of such income, it has to be independently found in penalty proceedings that the disputed amount represents his income. 9. The ld. Authorised Representat .....

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n 271(1)(c) of the Act and whether it was a fit case to impose the penalty by invoking the said provisions. It was submitted that, in the instant case, there was no concealment of income as the income assessed was only a notional income computed by restating the foreign currency liability at the end of the year in compliance with Accounting Standards which cannot by any stretch of imagination can be called as concealment of income or furnishing inaccurate particulars of such income. Further, the .....

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e particulars of its income. In the present case, it was not the case of the Assessing Officer that the assessee has concealed the particulars of its income. The Assessing Officer has imposed penalty on the ground that the assessee has furnished inaccurate particulars of its claim of expenditure. 10. The ld. Authorised Representative for assessee placed reliance on the judgment of the Supreme Court in the case of CIT vs. Reliance Petroproducts (P.) Ltd. (cited supra), wherein it was observed as .....

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on has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India vs. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that (page 13 of 317 ITR ): "13. It goes without saying that for applicability of section 271 (1)(c), conditions stated therein must exist. '" .....

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income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnis .....

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e in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. " 11. The ld. Authorised Representative further placed reliance on the order of the jurisdictional High Court in the .....

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2010) 322 ITR 73 (P&H). In the instant case, the assessee has claimed expenditure incurred during the period of pre-commencement of business as revenue expenditure based on the Audited Statements of Account under bona fide belief, hence treating the said claim as 'furnishing inaccurate particulars' and invoking the provisions of Section 271 (1 )(c) of the Act, is against the provisions of the Act. The ld. Authorised Representative for assessee Has also pleaded during the course of ap .....

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would not mean that the assessee has intended to evade the taxes. It is the duty of the Assessing Officer to consider the facts of the case and the submissions afresh and make a determination as whether an assessee has concealed the income or furnished inaccurate particulars of such income. For a penalty to sustain, the assessee should have a malafide intention to evade the payment of taxes. The assessee, in the present case, has offered the income of C.4,76,517/- which was computed on account o .....

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as followed the decision of Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Limited vs. CIT (cited supra) and disallowed the setoff of claim of the income against the business pre-commencement expenses incurred during the year. The assessee's AR in his written submissions, has quoted the decision of the Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Limited (cited supra) and distinguished the facts of the assessee's case with that of the fac .....

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mputed to restate the foreign currency loan liability at the prevalent exchange rate as at the end of the Financial Year, adhering to the Accounting Standards issued by the ICAI. 12. The ld. Authorised Representative for assessee further submitted that the Indian Income Tax Act does not contemplate to tax the notional gains, but the actual gains. Hence, in the present case, though the income computed as a result of restatement of foreign currency loan liability was notional in nature, the assess .....

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ting the disallowance of claim of expenditure. The AO has disallowed the assessee's claim of loss for the assessment year under consideration and invoked the provisions of Section 271(1)(c) alleging that the assessee had furnished inaccurate particulars for claim of loss and computed the quantum of penalty on the basis of tax sought to be evaded. 13. We have heard both the sides and perused the material on record. We consider it appropriate to reproduce Explanation 1 to Section 271(1)(c), wh .....

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xplanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him,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. It is thus clear that the onus is on the assessee to prove, inter alia, that such explanation is give .....

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na High Court has observed as follows: "As to the nature of explanation offered by the assessee, it seems plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is given, the burden placed on him will be discharged and presumption rebutted. It is not the law, and perhaps hardly can be, that any and every explanation of the assessee must be accepted. In my view, the explanation of the assessee for avoidance of penalty must be an acceptable explana .....

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ple that it is not the law that the moment any fantastic or unacceptable explanation is given, the burden placed on him will be discharged and presumption rebutted. We agree. We further agree that it is not the law that each and every explanation by the assessee must be accepted. It must be acceptable explanation, acceptable to a fact finding body." 17. Viewed in this perspective, just because assessee has an explanation- whatever be its worth and credibility, it does not cease to be a case .....

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ovisions of Income Tax Act. As per Income Tax Act expenditure incurred during pre-commencement period cannot be allowed as deduction while computing the income of the assessee. There was thus no reason for assessee to deviate from the provisions of Income Tax Act, when admittedly the assessee has not commenced its business activities in the assessment year under consideration. The onus is on the assessee to prove that the explanation is bonafide but there is nothing from the assessee to even ind .....

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of the assessee, in our considered opinion, cannot be said to be bonafide. In our humble understanding, the explanation of the assessee is not acceptable and we reject the same. In any case, Auditors report obtained by the assessee cannot override Income Tax provisions and just because the assessee's claim is supported by a chartered accountant's opinion, this fact per se cannot absolve the assessee from penalty under section 271(1)(c). 19. As regards learned counsel's reliance on S .....

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uld be no question of inviting the penalty under section 271(1)(c) of the Act" and that "a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee. 20. However, this is not the end of the matter. Not only that the penalty provisions cover the situations in which the assessee has concealed income or furnished the inaccurate particulars, in certain situation, even without there being anyth .....

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xplanation or the explanation offered by the assessee is found to be false by the Assessing Officer or the CIT(A); and, (b) second, where in respect of any facts material to the computation of total income under the provisions of this Act, the assessee is not able to substantiate the explanation and the assessee fails to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of total income. In the first sit .....

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viz the assessee is not able to substantiate an explanation in respect of any fact material to the computation of total income, and, in addition to this, the assessee is also not able to prove that such given explanation was bona fide and all the facts relating to the same and material to the computation of total income have been disclosed by the assessee. When this deeming fiction comes into play, the related addition or disallowance in computing the total income of the assessee, for the purpos .....

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ssible. This situation cannot be equated with a claim of deduction under section 14 A in respect of which, as Supreme Court had observed in the case of Reliance Petroproducts (supra), the assessee's plea was that "that the disallowance made by the Assessing Authority in the assessment order under section 143(3) of the Act were solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do .....

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f emphasis on the fact that the assessee's explanation has not been found 'false' but then this plea overlooks the fact that when an assessee's explanation is found 'false', this case falls in category (A) of Explanation 1 to Section 271(1)(c) whereas the present case is in category (B) thereof and it covers a situation when assessee offers an explanation and not able to prove its bonafides. These two situations are mutually exclusive situation and just because conditions .....

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ve work and to make amicable settlement with the Income-tax Department. The statute did not recognize those types of defences under Explanation 1 to section 271(1)(c) of the Act. The surrender of income in this case was not voluntary in the sense that the offer of surrender was made in view of detection by the Assessing Officer in the search conducted in the sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been th .....

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turn of income filed by it from year to year. The Assessing Officer had recorded a categorical finding that he was satisfied that the assessee had concealed the true particulars of income and was liable for penalty proceedings under section 271 read with section 274 of the Act. There was no illegality in the Department initiating penalty proceedings 24. Thus, in the present case, claim of the assessee towards administrative expenditure at C2,97,275/- and finance charges at C1,25,30,730/- as busi .....

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