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TMI Blog2021 (2) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... s noticed by the Assessing Officer (AO) that the assessee has debited an amount of Rs. 2,02,33,602/- as deferred tax asset written off in the profit and loss account as exceptional item. However, the same has not been disallowed in the computation of taxable income. In response to a query raised by the AO, the Authorized Representative (AR) of the assessee explained vide ordersheet noting dated 12.03.2015 that the same remained to be added inadvertently and accepted the addition. Accordingly, the AO made an addition of Rs. 2,02,33,602/- to the total income of the assessee. Thus the total loss reflected by the assessee in the return of income was reduced to loss of Rs. 5,68,60,644/-. 4. The AO then initiated penalty proceeding u/s 271(1)(c) of the Act. In response to the penalty notice u/s 274 r.w.s 271(1)(c) of the Act. The assessee filed a reply stating inter alia that : "3.2 In the instant case, the return of income was assessed declaring a total loss of Rs. 5,68,60,644/-. Further, during the course of assessment proceedings, assessee had accepted the addition made on account of deferred tax asset written off in the profit and loss account as exceptional item and also offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The object behind the enactment of section 271(1)(c) read with Explanations indicates that the section has been enacted to provide for a remedy for loss of revenue. The penalty under the provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C..............[emphasis provided] Hence, the imposition of penalty in this case is a natural culmination of the assessment proceedings." 5. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) confirmed the minimum penalty of Rs. 65,64,793/- levied by the AO with the following reasons : "4.3 I have considered the facts of the case and submissions made by the assessee. (A) It appears from the paragraph 4 of the assessment order u/s. 143(3) dated 12/3/2015 as follows; "Accordingly, the amount of Rs. 2,02,33,602/- is hereby added to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the IT Act 1961 are being separately initiated 'fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 7,50,72,083/- and total income shown at Rs. zero. Calculation of taxes payable was shown at Rs. NIL and TDS credit of Rs. 1,50,000/- was claimed and refund due was worked out at Rs. 1,50,000/- and schedule 1,2,3,5 and 7 giving breakup of disallowances, u/s 49A/40c, income from other sources were meticulously worked out in two-page computation sheet dated 3/12/2012 claimed to have been signed by authorized signatory. Return of Income for AY 2012-13 showing 'current year loss' of Rs. 7,70,94,246/- and refund of Rs. 1,50,000/- were duly shown against columns 3a and 9 of the return of income form and was duly signed by Mr. Frank Koenig and uploaded on 27/11/2012. AO selected the case for scrutiny as per systems and procedures and noticed this mistake and issued a show cause notice and the aasessee's AR submitted that the 'amount of Rs. 2,02,33,602/- representing deferred tax assets was inadvertently not added back. AO added back the same to the business loss of Rs. 7,70,94,246/- and worked out the revised business loss at Rs. 5,68,60,644/- and initiated penalty proceedings under section 271(1)(c) of the IT Act 1961 for 'furnishing inaccurate particulars of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a base, it forgot to add the deferred tax asset written off figures of Rs. 2,02,33,602/- appearing as an exceptional item in column 6 while computing the total income. Not only this, assessee clubbed and classified this exceptional item of deferred tax asset written off of Rs. 2,02,33,602/- as 'other expenses' while filling up column 36 of part(A) P&L of the return of income for AY 2012-13. The same mistake stands committed in the two-page computation, of total income which was worked out meticulously while working out the addbacks and deductions/allowances and claiming TDS credit for Rs. 1,50,000/-. It may be mentioned here that even the figure of income taxable as income from other sources consisting of interest has been meticulously worked out to even include interest on refund of Rs. 8,750/- with other income of corporate rents receipts of Rs. 15,00,000/- . Thus this was not a case of an inadvertent error but a case of deliberate and intentional error committed by the assesses and its directors to furnish inaccurate particulars of income for AY 2012-13 and evade income to the extent of Rs. 2,02,33,602/- which would qualify for set off in future assessment years. Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that during the year under consideration also, the assessee incurred Rs. 568,60,644/- as assessed loss after the addition; the exceptional item being deferred tax asset written off was inadvertently left to be added back while computing the income at the time of filing the return. It is explained that merely because the addition was accepted as an inadvertent error, the AO held that the explanation offered was not satisfactory. The Ld. counsel submits that the financial statements of AY 2012-13 were on record which reflected the deferred tax asset written off in the profit & loss account and also a note to that effect in this Schedule of significant accounting policies. Thus it is stated that the observation that there was no independent evidence and the finding that the same had been revealed in the assessment proceeding only is erroneous. It is stated that the carry forward loss has not been set off subsequently and the assessee has huge carry forward assessed losses of earlier years which were otherwise available for set off. On the above, the Ld. counsel relies on the decision in Price Waterhouse Coopers Pvt. Ltd. v. CIT - 348 ITR 306 - SC, Hotel Sahil Pvt. Ltd. v. ACIT (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or-opening u/s 147 relevant to A.Y. 2000-01 In this case, regular assessment was completed under Section 143(3) on 26.03.03 at a total income of Rs. 24,42,91,550/-. On perusal of the assessment records, it is seen from Clause 17(i) of the Tax Audit Report that Rs. 23,70,306/- being liabilities provided for payment of gratuity, was provided for during the year. This provision is not allowable u/s 40A(7) and was required to be added back. However, the same has not been added by the assessee in its computation, thereby leading to underassessment of income by Rs. 23,70,306/." Soon after, the assessee was communicated the reasons for reopening the assessment, it realized that a mistake had been committed and accordingly by a letter dated 20.01.2005, the Assessing Officer was informed that there was no wilful suppression of facts by the assessee but that a genuine mistake or omission had been committed which also appears to have been overlooked by the Assessing Officer before whom the tax audit report was placed. Accordingly, the assessee filed a revised return on the same day. A re-assessment was passed on the same day and the assessee then paid the tax due as well as the intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced by the Ld. DR is on the decision in Dharmendra Textiles Processors (supra). The questions which arise for determination in that case are : whether section 11AC inserted by the Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evade payment of tax should be read to contain mens rea as an essential ingredient; and whether there is a scope for levying penalty below the prescribed minimum limits. Before the Division Bench, stand of the revenue was that said section should be read as penalty for statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority is duty bound to impose penalty equal to the duties so determined in such cases. The assessee, on the other hand, referred to section 271(1)(c) of the Income-tax Act, 1961 taking the stand that section 11AC is identically worded and in a given case it is open to the Assessing Officer not to impose any penalty. The Division Bench made reference to rule 96ZQ and rule 96ZO of the Central Excise Rules, 1944 and to a decision in Chairman, SEBI v. Shriram Mutual Fund [2006] 5 SCC 361 and was of the view that the basic scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, reference has been made to the provision stating that the levy of penalty is mandatory. In the notes on clauses also, the similar indication has been given. [Para 26] Above being the position, the plea that the rules 96ZQ and 96ZO have a concept of discretion inbuilt could not be sustained. Dilip N. Shroff's case (supra) was not correctly decided but Chairman, SEBI's case (supra) has analysed the legal position in the correct perspectives. The matter shall now be placed before the Division Bench to deal with the matter in the light of what has been stated above, only so far as the cases where challenge to vires of rule 96ZQ(5) are concerned. In all other cases, the orders of the High Court or the Tribunal, as the case may be, are to be quashed and the matter was to be remitted back to it for disposal in the light of the instant judgments. [Para 27]" 8.2 It is well settled that in the scheme of the Act, the proceedings for imposition of penalty, though emanating from proceedings of assessment, are essentially independent and a separate aspect of the proceedings which closely follow the assessment proceedings. It is also well settled that findings given in assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here that the financial statements of the AY 2012-13 were on record which reflect the deferred tax asset written off in the profit & loss account and also a Note to that effect in the Schedule of significant accounting policies. Thus the observation made by the AO that there was no independent evidence and the finding that the same haS been revealed in the assessment proceedings only is not correct. We find that the carried forward loss has not been set off subsequently and the assessee has huge carry forward assessed losses of earlier years which were otherwise available for set off. As mentioned earlier, the financial statements of the assessee were placed before the AO during the course of assessment proceedings which clearly stated the deferred tax asset written off as a separate line item on the face of the profit and loss account. Also in Note 19 (Significant Accounting Policies) forming part of financial statements, it is stated at 19.6b that : "Deferred Tax for timing differences between book profit and tax profit is accounted for using the tax rates and laws that have enacted as of the Balance Sheet date. Deferred tax assets are recognized to the extent there is reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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