TMI Blog2020 (2) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... during assessment proceedings; and that no relevant information of fact was withheld by the assessee from the revenue s authorities during assessment proceedings. When there was full disclosure of materials facts and circumstances by the assessee in the Return of Income and during assessment proceedings; then, on a the disputable issue of quantum addition, on which two different views are legitimately possible, of which the one favourable to the assessee has been adopted by the assessee; eventually, the Assessee may or may not succeed in the quantum proceedings and the disputable issue, on which two different views were possible, may eventually be decided against the Assessee in quantum proceedings Assessee cannot be burdened with penalty u/s 271(1)(c) if on a disputable issue of quantum addition, on which two different views were legitimately possible, the Assessee decided to adopt the view which was favourable to the assessee; in a case in which all necessary details were filed by the Assessee in support of the claim and when no material inaccuracies were found in these details, and when the assessee is not guilty of suppression of any material facts. In quantum proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accrued to the assessee though the assessee had not recognized this Revenue. The assessee s contention was, that pending the settlement of EPC contract, this amount had not accrued to the assessee. However, the AO rejected this contention of the assessee and made the aforesaid addition amounting to ₹ 149,31,02,715/-. Penalty proceedings were initiated by the AO under Section 271(1)(c) of I.T. Act in respect of the aforesaid addition of ₹ 149,31,02,715/-. The AO, however, held that if in appeal the assessee s claim of treating revenues as non-taxable on account of it being uncertain is accepted, then the provision made by assessee for the additional expense to the extent of ₹ 102,60,80,000/- should be disallowed on matching principles and on the same logic as for exclusion of revenues. In effect, therefore, the AO was of the view that if the aforesaid revenue amounting to ₹ 149,31,02,715/- is not held as taxable in the hands of the assessee, then, the corresponding expenses amounting to ₹ 102,60,80,000/- should be disallowed on matching principles. However, the AO did not initiate penalty proceedings under Section 271(1)(c) of I.T. Act in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,94,58,972/- 3. Disallowance of pre-acquisition expenses = ₹ 112,51,00,000/- 4. Sudan pipeline - Addition to income in respect of claim made to Sudan Government not accepted by them = ₹ 149,31.00.000/- 2. Aggrieved by the above additions made, assessee filed appeal before Ld. CIT(A)-XVI who in his order dated 24.02,2014 in Appeal No. 140/09-10 has decided the appeal as under:- 1. Addition made on account of disallowance of depreciation on Participating Interest issue decided in favour of assessee 2. Addition made on account of disallowance of depreciation on Support Equipment - issue decided in favour of assessee. 3. Addition made on account of disallowance of pre-acquisition expenses - issue decided in favour of assesseee 4. Addition made to income in respect of claim made to Sudan Government not accepted by them has been reduced to ₹ 102,60,80,000/- against the addition of ₹ 1,493,100,000/- 3. Thus, the only issue that survives for consideration for levy of penalty is additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31/8/05 - 2 months ahead of contractual schedule of 31/10/05- Copy Of completion certificate issued by the Government of Sudan is enclosed as Annexure 5 to this letter. Further, on the basis of such certificate, the Assessee has also issued a certificate to the EPC Contractor acknowledging that the provided work/assignment has been completed Liability to EPC Contractor for claim made by them for additional work carried out and accepted/verified by the Assessee 's consultant The EPC Contractor encountered certain constraints such as the scarcity of water for hydro Jesting, port congestion etc. In order to complete the work within the schedule timelines, The EPC Contractor adopted various acceleration measures. including making arrangements for additional spreads, increased resources and airfreight by incurring significant expenditure. In a letter dated 30 June 2005, the Assessee informed the EPC Contractor that variations in quantities of items indicated and / or identified in the Contract shall be settled on the As Built Data and / or Documents in accordance With [he provisions and unit rates set forth in Annexure C of the Contract. The EPC Contractor wav also requeste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to MEM for their approval for an aggregate amount of receivables from MEM ₹ 1,524.20 Million (Company's share being ₹ 1371.78 Million), while the balance claims may be forwarded to MEM after further verification. Pending settlement with the EPC Contractor, an amount of ₹ 1,026.08 Million being the Company's share out of Rs, 1,140.08 Million has been provided as expenditure during the year based upon the advices received by the Company from its consultant. The Company's share of the balance amount has been shown as claims not acknowledged as debt. However, no revenue -in this respect has been recognized pending final approvals by MEM. Copy Of the relevant page of the Annual report is enclosed as Annexure 8 to this letter. Since the claim made/expenditure incurred by EPC Contractor was revenue in nature and represent liability already incurred the assessee has claimed deduction of expenses in the return of income. Also, the Assessee has specifically mentioned the facts of such claim in clause 60f the notes to the computation of income attached to its return of income and the same is reproduced below: During the year, the company completed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts payable to Dodsal have already been assessed and confirmed through the above referenced letters dated May 25, 2006; October 5, 2007 and November 2, 2007, Any further assessment suggested in OVL s letter dated July 31. 2008 is not warranted in light of OVL 's prior admissions and is obviously intended only to delay the payment of the Aggregate Amount. Keeping in view that the aforesaid arbitration has initiated on 26 December 2008, your good self may appreciate that there was no dispute in relation to claim raised by EPC Contractor and approval by the consultant of the Company till the date of filing of the tax return for the A Y 2006-07 (both original and revised). Further, the Company has also issued the certificate of completion of work to the EPC Contractor. Accordingly, the liability had been crystallized in the financial year 2005-06 amounting to ₹ 1,026.08 million and claimed as revenue expenditure. Further, we wish to highlight that no dispute had arisen even till the date of filing of revised return of income, accordingly, the claim of the Assessee was bonafide and allowable as revenue deduction. In the financial year 2014-15, the arbitrator has award ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d like to convey to you that the Contractor is not entitled to any amount under his claims for additional amounts, as the alleged variations were not approved by the Owner before implementation of the works the subject of the variations. In addition the required procedures under the contract for both, variations approval .or claims were not followed. However, the high standard of performance and early completion by of the project the Contractor (OVL) is appreciated and high valued and could be a matter of consideration at your company's own discretion and consideration, without any legal obligation to do the same, Copy of the letter is enclosed as Annexure 13 to this letter. Thereafter, there has been a series of communication with MEM to process the payments of the additional claim raised by the Assessee, Arbitration In the absence of approval and processing of payments, the Assessee has invoked arbitration proceedings against its customer, MEM vide its letter dated 14 May 2009 and the same is pending till date. Copy of letter dated 14 May 2009 intimating MEM for invocation of arbitration proceedings is enclosed as Annexure 14 to this letter. In view of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses claimed by the EPC Contractor. Accordingly, your goodself may appreciate that the Assessee has made full disclosures and elaborate legal submissions and cannot be said to have either concealed any income or furnished any inaccurate particulars of income, therefore, penalty should not be imposed on the Assessee. Further, Assessee submitted that the admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income. What is a correct claim and What is an incorrect claim could be a matter of perception. Various judicial precedents have held that legislature intends to levy penalty only in cases where there is a concealment of income or furnishing of inaccurate particulars Of income With a malafide intention so as to evade taxes. This view and understanding of the intent of .legislature is supported by landmark decision of Supreme Court in the case CIT vs 'Reliance Petro products Pvt. Ltd. [2010] 322 ITR 158 (SC). In the said ruling, an addition in respect of interest expenditure was made during the course of assessment proceedings. This interest expenditure was on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT, New Delhi vs. M/s Dharampal Premchand Ltd [2010-TIOL-654-HC- DEL] CIT vs- Vijay Kumar Jain [325 ITR 378] Chhatisgarh HC In the above, facts of the case, your goodself may appreciate that the facts in respect of the claim Of the Assessee have been fully disclosed in the note 5 of schedule 27 of the annual report of the Assessee. Also, the Assessee has .specifically mentioned the details of such claim in the notes 10 the computation of income. Further, the Assessee has also filed the relevant documents with the tax authorities during the course of assessment and appeal proceedings. In view of the above, it is submitted that Assessee had fully disclosed all the relevant particulars and facts and there was no concealment of income. Further, we wish to submit that the expenditure incurred by the Assessee is in the nature of revenue expenditure and the liability has also crystallized liability during the year. Keeping in view that the expenditure has crystallized and -is' revenue in nature the same is allowable under section 37 of the Act as per Apex Court rulings in the case of Empire co. Ltd vs. CIT 124 ITR 1 (SC), CIT vs. Associated Cement Companies Ltd. 172 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has proceeded to consider the income attributable to such expenses. Therefore your goodself may appreciate that the Assessee does not fall in any of the above-said criteria since: The Assessee has neither failed to offer an explanation nor such explanation is found to be false; or Further, the Assessee has been able to substantiate the explanations and demonstrated that such explanations were bonafide Therefore, it cannot be said that Assessee had failed to offer an explanation or any explanation have been found to be false or the explanation relating to the facts lacks bonafide. Hence, the provisions of section 271 (I) (c) of the ACI are not attracted and therefore penalty should not be imposed on the facts and circumstances Of the case, In the following judicial precedents, the Hon'ble Courts/Tribunals have held that merely because there was an addition made by the assessing officer in the course of assessment where the Assessee had taken a-different position at law based on judicial precedents, section of the ACI is not attracted: Shervani Hospitalities Ltd. vs. CIT [2013] 35 taxmann.com 271 (Delhi) Devsons (P.) Ltd. vs. CIT 329 ITR 483 (Delhi) Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the Assessing Officer held that: on completion of the project during the year, the company had a definite right to claim its share of revenues to the extent of 1493.10 million. The assessee company also forwarded its claim of ₹ 1493.10 million to MEM during the year. As such, for the year under consideration the income was ascertained and definite and hence should have been returned as taxable income. The principal of matching in accounts which IS upheld in server judgments of the Supreme Court and High Court including the jurisdictional High Court is based on four concepts; (a) The period to which income j expenditure relates to (b) The year in which the income / expenditure accrue - or right to receive or liability to pay arises. (c) Ascertainment of quantification Q/ the income or expenditure (d) Final payments. 8.7 It may be mentioned that whereas in the cash system of accounting the fourth point i.e. payments is most important. In the case of accrual system of accounting the first three points are important. In the case of the assessee who maintained its account on accrual system of accounting the first three points are imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to explain the difference between the assessed income and returned income. It has been held that the onus is not on the Revenue to prove mala fide, even When the primacy onus was on the assessee to prove that there was no concealment in view of Expln. I to Section of the Act and no separate enquiry is necessary before imposing tie penalty. It is well established that whenever 'here is difference between the returned and assessed income. there inference of concealment The operative portion of the jurisdictional Tribunal's order is reproduced hereunder 'The legislature has not used the words 'concealed his incomes., From this it would be apparent that penal provision would operate when there is a failure to disclose fully or truly all the particulars. The words Particulars of income' refer to the facts which lead to the correct computation of income in accordance with the provisions of the Act. So when any fact material to the determination of an item as income or material to the correct computation is not filed or that which is filed is not accurate, then the assessee would be liable to penalty under Section 271(1)(c) of the Act. The expression has concea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars are furnished. Where in the constituents of income returned, such specific or definite particulars of income are detected as concealed, then even in the total income figure to that extent they reflect, it would amount to concealment to that extent. In the same way where specific and definite particulars of income are detected as inaccurate, then such figure will also make the total income inaccurate in particulars to the extent it does not include such income. Whether it be a case of only concealment or of only inaccuracy or both, the particulars of income so vitiated would be specific and definite and be known in the assessment proceedings by the HO, who on being satisfied about each concealment or inaccuracy of particulars of income would be in a position to initiate the penalty proceedings on one or both of the grounds of default as may have been specifically and directly detected The opportunity of hearing given by the notice under section 271(1)(c), obviously is against such concealment and inaccuracy as is detected in the assessment proceedings . (ii) Hon ble jurisdictional High Court in Jaswant Rai v. CBDT [19821 133 ITR 19/[1981] 7 Taxman 210 (Delhi) held that the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantiated and he fails to prove that such explanation is bonafide and that all the facts relating the sane and material to the computation of his total income has been disclosed by him, for the purposes of Section 271(1)(c), the amount added or disallowed in computing the total income is deemed to represent the concealed income. The penalty spoken of in Section 271(1)(c), is neither criminal nor quasi criminal but a civil liability, albeit a strict liability Such liability being civil in nature, mens is not essential. (iv) In the case of Union of India and Ors. vs- Dharmnendra Textile Processors and Ors, a three judge Bench of this Court held that Dilip N. Shroff did not lay down correct law as the difference between Section 271(1)(c) and Section 276(c) of the Act was lost sight Of The Court held that the explanation appended to Section 271(1)(c) indicates element of strict liability on the assesse for concealment or for giving inaccurate particulars while filing the return. The Court held thus: The Explanations appended to Section 271(1)(c), of the Income Tax Act, 1961, indicate the elements of strict liability on the assessee for concealment or for giving inaccurate pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Delhi High Court, in the case of M/S Zoom Communication Pvt. Ltd., in ITA No. 7/2010 dated 24.05.2010 has held that- The Court cannot overlook the fact that only a small percentage of Ike Income Tax Returns are picked up for scrutiny. if the assessee makes a claim which is not only incorrect in laws but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bonafide, .it would be difficult to say that he would still not be liable to penalty u/s 271(1)(c) of the Act- The Hon ble High Court observed that the a claim which is wholly untenable in law and has absolutely no foundation on which it could be mean, lie assessee would not be liable to imposition of penalty, even if he was acting bonafide while making a claim of this nature, that would give a licence to unscrupulous assessees to make wholly untenable and unsustainable-claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self assessment under Section 143(1) of the Act and even if their Case is selected for 'scrutiny, they can. get away merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim to the contractor as well as to the appellant, Neither the claim of the EPC Contractor has been accepted by the appellant company nor has the claim of the appellant company been accepted by MEM. In view Of the above neither revenue is recognizable in the hands of EPC Contractor not it can be recognized in the hands of the appellant company. The principle which the appellant applied claim that revenue is not recognizable, by the same principle the liability has not crystallized and has not' arisen in its hand In Other words neither the liability has arisen in the hands appellant company nor revenue has accrued, In this regard, we wish to submit that the transaction of expenditure in relation to EPC Contractor and accrual of income from Ministry of Energy and Mining of the Government of ('MEW) are independent of each other and the liability or me Appellant to make payments to the EPC contractor are not linked with the receipt of the funds front MEM. In view of the above, the Appellant has filed an appeal before the Hon ble income Tax Appellate Tribunal against the order Of the Hon'ble CIT(A) which is pending adjudication. Pursuant to the order passed by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. Subsequently, on 14 August 2005, a meeting was held among the representatives the Appellant s consultant and EPC Contractor to discuss the adjustment to the contract price consequent upon the alterations/variations to the scope of work undertaken by the EPC Contractor. Further, the EPC Contractor was advised by the Appellant to submit its variation proposals, alongwith relevant supporting documentation. The amount of claim of EPC Contractor for additional work done, provided in the books of accounts In compliance with the above advice, the EPC claimed additional costs amounting to USD26,982,643, USD 8,894,325 and USD 1,270,435 (aggregating to ₹ 1,659 million) vide its letters and invoice dated I December 2005 and 09 January 2006. Such letters/invoice submitted with ONGC (consultant) for review and approval. The Consultant reviewed such claims and approved the claims of USD 26,982,643 and USD 1,270,435 with minor modifications and rejected the claim of USD 8,894,325. The same were communicated to the EPC Contractor vide its letters dated 25 May 2006 and 05 October 2007. On the basis of the letters issued by the ONGC in respect of approval of claim of EPC Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the above referenced letters dated May 25, 2006; October 5, 200/ and November 2, 2007. Any further assessment suggested in OVL's letter dated July 31, 2008 is not warranted in light of OVL s prior admissions and is obviously intended only to delay the payment of the Aggregate Amount. Keeping in view that the arbitration has been initiated on 26 December 2008, your Donor may appreciate that there was no dispute in relation to claim raised by EPC Contractor and approved by the consultant of the Company till the date of filing of the tax return for the A Y 2006-07 (both original and revised). Further, the Company has also issued the certificate of completion of work to the FPC Contractor. Accordingly, the liability amounting to Rs- 1,026.08 million had crystallized in the financial year 2005-06 and the has been claimed as revenue expenditure. From the above, your honor may appreciate that the Appellant did not had any information w.r.t. any litigation/arbitration at the time of filing of original as well as revised return of income. Therefore, the Appellant acted in bonafide manner and did not conceal any particulars of income or furnish any inaccurate particulars Of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, the Appellant has also filed the relevant documents with the tax authorities during the course or assessment. penalty and appeal proceedings. In view of the above. It is submitted that Appellant had fully disclosed all the relevant particulars and facts and there was no concealment Of income. Furnishing of inaccurate particulars of income It is submitted that the expenditure has crystallized in the relevant assessment year and accordingly, the same has claimed in the original return or income. Further, even at the time of filing of the revised return or income, the arbitration proceedings were not initiated by the EPC Contractor. Accordingly, there was d bonafide reason the claim of the expenditure the revised return as ell. Also, during the course or assessment proceedings, the Appellant had explained truly and correctly the entire facts. Your honor may appreciate that observations in the assessment order do not refute the explanations given by the Appellant in respect of the expenditure rather, the Ld. AO has proceeded to consider the income attributable to such expenses. Accordingly, the Appellant has not furnished inaccurate particulars Of income/claim made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aesessee has been able to bring his case Within the four corners Of the Explanation. 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. Hon'ble Delhi High court in the case of CIT vs. Limited [2013] 37 taxmann.com 447 (Delhi) held that levy Of penalty is not warranted Where al/ the information and facts are present before the Assessing officer. Relevant .extract reproduced below : It is obvious and crystal clear that the assessee was aware that this claim would be examined by the Assessing Officer and the claim was put forward on the basis that loan was given to a subsidiary company and the loan granted to them Was for specific purpose and for the benefit of the holding company. It is not disputed or denied that the loan in fact was granted and has been also written off. There was no concealment or furnishing of inaccura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. when the return Of income was filed. The Act, i.e. the Income Tax Act, is a complex legislation involving intricate and often debatable legal positions. The legal issue involved may relate to principles of accountancy. Invariably, on questions of interpretation, the assessees do adopt a legal position which they perceived as most beneficial or suitable. This would not be construed as lack Of bona fides as long as the legal position so adopted is not per se Contrary to the language of the Statute or an undebatable legal position not capable Of a different connotation and understanding. When two legal interpretations were plausible and there was a genuine or credible plea, penalty for concealment/furnishing of inaccurate particulars, should not and cannot be imposed. If the view taken by the-assessee required consideration and was reasonably arguable, he should not be penalized for taking the position. On the basis of the above, your honor may appreciate that the Appetent has disclosed all the facts and provided the explanations to the Ld. AO, however, the Cd. AO has summarily held that he is of the view that the explanation is clearly attracted. Therefore your honor may apprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot tantamount to furnishing of inaccurate particulars or concealment of income. no finding by the AO that any details supplied by the assessee in its Return were found to be incorrect or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A 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.... Merely because the assessee had claimed the expenditure, which claim was not accepted of was not acceptable to the Revenue that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Retum where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature...... In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By stretch Of imagination. making an incorrect claim in law cannot tantamount to furnishing inaccurate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not mandatory tor a person to Obtain legal opinion in writing. Assessees do take legal opinion and In the present case the return of income was duty audited. Claim for depreciation is d technical claim based on Interpretation Of legal provision. Legal opinion, in such 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. It has been observed by the Hon ble Delhi High court that the question whether penalty should be imposed under 271(1)(c). when a debatable and arguable legal issue is decided against the assessee and the assessee had disclosed full and correct facts is no longer integra. The Courts In several judgments have drawn a distinction between a false claim, which cannot be countenanced, and claims, Which arc made on the basis of legal provisions Which are debatable and quite plausible. CIT vs. Steel Authority Of India Ltd. [2014] 52 taxmann.com 328 (Delhi) The Hon'ble Delhi High court held that where assessee has given truthful and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 202 (Chennai) On the basis or the above judicial precedents, your honor may appreciate that it a Well Settled law that penalty cannot be levied in cases involving debatable issues Wherein more than one view is possible or where addition disallowance to the income arises due to difference Of opinion. In the present case, the Appellant has not furnished Inaccurate particulars or income at the time Of furnishing its return Of income. The Appellant was under a bona fide belief that the liability to make payment to FPC Contractor has crystallized and accordingly, the same was claimed as deduction the advice of the consultant. On the basis of the above, your honor would appreciate that the entire issue of crystallization of liability is a debatable issue. Therefore. it shall be arbitrary to conclude that Appellant had furnished inaccurate particulars or income. Accordingly, we humbly plead that penalty should not be imposed on the Appellant as there is neither any concealment of income nor furnishing of any inaccurate particulars Of income. In view Of the factual and legal submissions made above, it is respectfully prayed no penalty should be levied in the case or the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the provisions or the Act whereas in penalty proceedings we are primarily concerned with the conduct of the assessee. Penalty is imposed not because addition is made but because there is concealment or furnishing of inaccurate particulars by the assessee. Vinod Bhargava Vs. CIT [2014] 51 taxmann.com 498 (Andhra Pardesh) If any information was suppressed by the assessee and but for the attentiveness of the Income Tax Officer, it would have escaped taxation, the assessee must certainty be dealt With sternly. Where, however, the assessee honestly files returns by presenting the facts known to him and claims some benefit in his understanding of the law, the mere fact that a different view is possible on some of the claims, must not lead, straight away, to imposition of penalty. Denial of benefit itself would be a phenomenal disadvantage to the assessce. Suzuki Motorcycle India Ltd. (ITA No. 6487/Del/2013 and 4248/Del/2010) In regard to the otter addition on the basis of which penal action has been upheld by the CIT(A) namely long term capital loss it is seen that the addition in the quantum proceedings has been upheld by us. It is settled legal position for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery to Port Sudan for MEM had claimed additional cost post completion of the aforesaid project. The appellant company had forwarded to MEM the claim made by the EPC Contractor. The appellant company made provision for the claim made by the EPC Contractor for additional work amounting to ₹ 102,60,80,000/- and claimed deduction in the return of income. However, matching revenue to the extent of ₹ 149,31,00,000/- (as against the correct amount of ₹ 137,17,80,000/-) was not considered in the P L A/c on the ground that no income can be said to accrue to an assessee, unless the assessee acquired the right to receive that income. The Ld. CIT(Appeals) deleted the aforesaid addition to income by the AO but disallowed the provision made/deduction of expenditure against the claim raised by EPC Contractor for additional work stating that the liability has not crystallized in the previous year. Relevant extract of the order of the Ld. CIT(Appeals) is reproduced below: There is no legal entitlement to the claim to the contractor as well as to the appellant. Neither the claim of the EPC Contractor has been accepted by the appellant company nor has the claim of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r executing the project has chimed additional costs aggregating to .₹ 1659.00 million (Company's share being ₹ 1,493.10 Million), which have not been accepted by the Company as yet. However, part of the claims has been forwarded to MEM for their approval for an aggregate amount of receivables from MEM ₹ 1.52420 million (Company's share being ₹ 1371.78 Million), while the balance claims may be forwarded MEM after further verification. Pending settlement with the EPC Contractor, amount Of ₹ 1,026.08 million, being the Company's share out of As. 1,140.08 million has been provided as expenditure during the year based upon the advices received by the Company from its consultant. The Company's share of the balance amount has been shown ag not acknowledged as debt. However, no revenue in thig respect has been recognized pending final approvals by MEM. 2.5. It was further submitted that since the claim made/expenditure incurred, by the EPC Contractor was revenue in nature which represents liability already incurred, the appellant has claimed deduction of expenses in the return of income. The Ld. AR also stated that the appellant had specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Of income or furnished any inaccurate particulars of income and therefore, penalty should not be levied on the appellant. The Ld. AR has relied on a number of case laws in support of his contention. 2.8. The central issue for consideration is whether the appellant is liable for penalty u/s 271(1)(c) in respect of provision of its share in the claim of EPC Contractor in its books of accounts and the deduction claimed in the return of income in respect of ₹ 102,60,80,000/- which was fairly disclosed in note 5 of schedule 27 of the annual report of the appellant. Further, the appellant specifically mentioned the facts of such claim in clause 6 of the notes to the computation of income attached to its return. The AO had accepted this claim and made addition as the appellant had failed to offer the accrued revenues. The Ld. CIT(Appeals) while deleting the addition on account of matching revenue, held that the deduction claimed was not inadmissible ae liability claimed by the EPC contractor was not accepted by the appellant. It is therefore evident that there was difference of view on the same set of facts duly disclosed by the appellant in the return of income. It is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of any facts material to the computation of the total income of any person under this Act,-- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Deputy Commissioner- (Appeals) or the Commissioner (Appeals) 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 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. 2.11. As per Clause (A) to Explanation 1 to Section 271(1)(c), penalty is to be imposed, if an assessee fails to offer an explanation which is found by the AO to be false. Clause (B) to Explanation 1 provides that where the assessee offered an explanation but the same remained unsubstantiated, penalty should not be imposed if the explanation is bonafide and all facts relating to the same and mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and understanding of a provision or the tax treatment. In such cases, even when the interpretation placed by the Revenue is accepted, penalty should not be imposed if the contention of the assessee was plausible and bona fide. Of course full facts should be disclosed While applying the test of bonafide, we have to also keep in mind that even best of legal minds can have difference of opinion is not uncommon to have dissenting opinion on the question of law, in the courts. 2.12. The Hon'ble Delhi High Court in the case of Devsons (P) Ltd. vs. CIT 329 ITR 483 (Del) have observed as under: It is a trite law that where divergent views exist either within the department itself or such divergent views are expressed by the different High Courts and there is no uniformity or consensus on opinion on any aspect of law, the assessee cannot be faulted for taking a particular stand. The caveat, of course, is that the assessee must have placed all his cards on the table by disclosing each and every fact to the departmental authorities or the court concerned. If the assessee does so, then merely because the departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word particular 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 assesseecannot 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 furnishing inaccurate particulars. There can be no dispute that everything depend upon the return filed by the assesse, because that is the only document where the assessee furnish the particulars Of his income. When such particulars are found to be inaccurate, the liability would arise. TO attract penalty, the details supplied in the return not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous false there is no question Of inviting the penalty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revised to ₹ 638,06,45,610/-.As against the income returned, the learned AO framed an assessment and computed the total income at ₹ 1106,41,03,850/-. (Pg. 1 - 29 of PB) The aforesaid order of assessment had however been rectified u/s 154 of the Act by an order dated 09.03.2010. The income computed however did not undergo any change. 5. That while computing the aforesaid income, the AO made the following additions: SI. No. Particulars Amount (in Rs.) 1. Income from business Profession (as declared in revised return) 638,06,45,610/- Add. 1. Disallowance Of depreciation in respect of participation right of Sakhalin, Myanmar, Sudan, Ivory Coast, Egypt, Qatar etc. (para 4 of order) 204,57,99,264/- 2. Disallowance of claim of Depreciation on support equipments and assets of ventures where commercial production have not started (para no. 5 of order) 1,94,58,972/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st which aggregated to ₹ 1140.08 Million. The said sum of ₹ 1140.08 million included a sum of Rs- 1026.08 Million, which represented an additional claim made by EPC contractor was considered as admissible by the assessee as can be noted from the narration of facts and stated in subsequent paragraphs. It is submitted that the aforesaid sum of ₹ 1026.08 million, represented a claim made against the assessee by consortium of M/s Dodsal Pte Ltd. and M/S Dodsal Private Limited (hereinafter referred to as 'Dodsal' or 'EPC contractor'), who had been engaged by the assessee to carryout engineering, procurement and construction of Sudan Pipeline. EPC contractor had claimed from the assessee, additional cost amounting to USD 26,982,643, USD 1,270,435 and USD 8,894,325 (aggregating to ₹ 1659 million) vide its letters and invoices dated I December 2005 and 09 January 2006. 6.3 It is further submitted that assessee submitted the letters/invoices issued by the EPC contractor with its consultant for review and approval. Vide letter dated 25.05,2006 the consultant intimated the FPC contractor that its first claim has been scrutinized and processed for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor. The learned AO in para 8.5 of his order had held as under: As can be seen from the facts of the case, the project has been completed. As such both the total costs as well as the total revenues should be taken into accounts for determining the taxable profits on accrual basis. As such the company made a provision for additional expense of ₹ 1026.08 Million being company's share in the consortium. As the claim of revenues of the company to the extent of ₹ 1493.10 Million also accrued and crystallized on completion of the project, the co an should have recognised the same as revenues during the year on matching principal and paid taxes on it. 8. At this stage alone the assessee submits that, a sum of ₹ 1026.08 million represented a claim of expenditure; whereas an amount of ₹ 149,31,02,715/- represented an income which had allegedly accrued. It is submitted that these are two different items and one is of incurring of an expenditure and another is of accrual of income. The learned AO did not disallow the claim as made of ₹ 1026.08 Million and as such it is evidently clear that he could not be stated to have been satisfied that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of accounts on mercantile basis therefore the expenditure which have neither accrued nor incurred in the relevant previous year, is not allowable in this year. 10.1 The assessee had also filed an appeal inter-alia challenging the addition sustained by the learned CIT(A) which had been reduced from ₹ 1493.10 million to ₹ 1026.08 million. From the aforesaid sequence of events, it would be seen that the learned AO had made addition of ₹ 1493.10 million which was reduced to ₹ 1026.08 million by the learned CIT(A). 11. Since the learned CIT(A) had held, an addition made by the learned AO stands reduced to ₹ 1026.08 million, the assessee filed an appeal and had raised the following grounds of appeal: (i) That the Ld. CIT(A) erred in law and on facts or the case in not allowing deduction amounting to INR 1,026.08 million being the claim received from EPC Contractor for additional expenditurc incurred in respect of laying of Sudan pipeline. (ii) Ld. CIT(A) has failed to appreciate that the liability in respect of additional expenditure in laying of Sudan pipeline has crystallized as the additional claim for expenses was received and provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that apart from the findings recorded by the learned CIT(A), even the levy of penalty by the AO in respect of a sum of expenditure incurred and claimed by the assessee which had not been disputed by the AO and in respect of which no satisfaction had been recorded by the learned AO in the order of assessment. is not sustainable, as the AO had never been satisfied that in the course of assessment proceedings the assessee had either furnished inaccurate particulars of income or had concealed its income. (see Pr. CIT vs. M/S Sahara India Life Insurance Company Ltd. ITA No. 475/2019, judgment dated 02.08.2019) 17. Before Closing with the aforesaid submissions, the assessee-respondent submits that the Hon'ble Tribunal while disposing of the assessee's appeal by its order dated 01.07.2019, held as under: The various decisions relied on by the Ld. Counsel for the assessee are distinguishable and not applicable to the facts of the present case. In our opinion, the approach of the assessee should be consistent both for the revenue as well as expenditure. The assessee cannot take one stand for claiming the expenditure as an allowable deduction and, at the same time, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the books amounting to ₹ 1026.08 million. This provision was made bonafide based on the claim of the contractor which was assessed by the Assessee s consultant (Engineering Services of Oil and Natural Gas Corporation Ltd.) and communicated to the contractor by the consultant. The provision Rs- 1026.08 million was disclosed by way of Note no. 5 of the Notes to Accounts contained in Schedule 27 of the asssesseess annual accounts and was reviewed by the assessee's statutory auditors appointed by the Comptroller and Auditor General of India (CAG) and by the CAG itself since the assessee is a central Public Sector Undertaking (PSU) under the Ministry of Petroleum Natural Gas, Government of India- Remaining amount was not provided as it had not yet been approved. No amount was claimed in subsequent years. No claim of any income was even made on MEM Sudan in the previous year relevant to AY 2006-01, claim was made on 17.4.2006. 19. From the observations made in the order of assessment, it would be seen that the AO had held. that as the has made provision for additional expenses of ₹ 1026.08 Million being company's share in the consortium and it claimed revenues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. However, in response to specific query from the Bench, she conceded that there was full disclosure of material facts by the assessee in the Return of Income, and during the assessment proceedings; and further, that no relevant information of fact was withheld by the assessee from the Revenue s authorities during assessment proceedings. She also conceded that the question whether the aforesaid amount of ₹ 102,60,80,000/-, would be allowable in the hands of the assessee, or not; was highly disputable and, that different points of view could legitimately exist on the question of its allowability. She also did not dispute the fact that the AO had failed to specifically record his satisfaction for initiation of penalty proceedings in respect of the aforesaid amount of ₹ 102,60,80,000/- in the Assessment Order dated 04.12.2009, although the AO had specifically recorded such satisfaction in respect of the other additions (such as, addition of aforesaid amount of ₹ 149,31,02,715/-; disallowance of claims of depreciation amounting to ₹ 204,57,99,264/- and ₹ 1,94,58,972/-; and disallowance of pre-acquisition expenses amounting to ₹ 112,51,25,851/-.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be included at all. Scope of penalty proceedings U/s 271(1)(c) of IT Act cannot be widened later to include within its scope such additions which were not sought to be covered within the scope of penalty U/s 271(1)(c) of IT Act, at the time when penalty proceedings were initiated and assessment order was passed. The retrospective widening of the scope of penalty, to include those items for levy of penalty U/s 271(1)(c) of IT Act which were not included for this purpose at the time when penalty proceedings U/s 271(1)(c) of IT Act were initiated and assessment order was passed; amounts to review and change of opinion by the AO, to the detriment of the Assessee; which has no authority of law. Initiation of penalty proceedings by the AO is valid only if the AO is satisfied in the course of any proceedings, that the Assessee has concealed the particulars of income or furnished inaccurate particulars of income. When this satisfaction for initiation of penalty proceedings U/s 271(1)(c) of IT Act is recorded by the AO in assessment order in respect of certain additions during the assessment proceedings; and not recorded in respect of certain other additions; it acts as a bar against lev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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