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Income Tax Appellate Tribunal, DELHI BENCH : F : NEW DELHI
Before: SHRI C.M. GARG & SHRI PRADIP KUMAR KEDIA
ORDER
PER C.M. GARG, JM:
This appeal filed by the assessee is directed against the order dated 09.04.2019 of the CIT(A)-9, New Delhi, relating to Assessment Year 2015-16.
The grounds of appeal
raised by the assessee read as under:- “1. That on facts and in law notice u/s 274 r.w.s 271(1)( c) of the Act is not maintainable. Ld. AO has given notice without specifying whether there is concealment of income or assessee has furnished inaccurate particulars of income. The notice u/s 274 r.w.s 271(1)(c) is void ab initio.
2. That on facts and in law imposing the penalty under section 271(1)(c ) for Rs. 77,47,664/- is totally wrong, unjustified and illegal.
The appellant had never furnished any inaccurate particulars or concealed income at any stage of assessment proceedings as well as in penalty proceedings. The penalty imposed U/s 271(1)(c) ought to be deleted in full.”
Facts of the case, in brief, are that in assessment order Ld AO has observed that original ITR was filed on 23-09-2015 declaring total loss of Rs.247,54,141/-. Assessee’s case was selected for scrutiny and notice u/s 143(2) dated 28.09.2016 was issued. The assessee had revised its ITR on 01-10-2016 declaring loss of Rs.52,46,647/- after making disallowance u/s 43B of interest on bank loan amounting to Rs.195,07,494/- (Interest on bank OD Rs 165,86,255/-, interest on term loan of Rs.66,510/-, interest on LC of Rs.28,32,990/- and interest on BG of Rs.21,739/-). The AO initiated penalty proceeding on the basis that assessee has filed revised ITR after its case was picked up for scrutiny. In penalty order u/s 271(1)(c ) the AO stated that in its reply the assessee has submitted that voluntarily filing the revised return of income by the assessee on its own well within the time allowed under the IT Act, 1961 does not make the assessee liable for penalty provision of section 271(1)(c). It may be worth pointing out here that since the business of the assessee had already been closed down and there was no chance of revival of its business, the intentions of the assesse to claim higher loss can not be doubted in disallowing expenses u/s 43B and the return was revised within the allowed time period. No further details and explanation have been given, However, the response of the assessee in not acceptable as the return was revised only when the notice was served upon the 2
assessee. The assessee itself by its submissions has admitted that it had not disallowed the charges u/s 43B. Thus, the assessee is liable for levy of penalty on this count. In appeal CIT(A) upheld the AO’s order.
The ld. Counsel of the assessee reiterated the written submissions dated 23.05.2022 and submitted that in view of the judgements of the Hon’ble Supreme Court in the case of Hindustan Steel Ltd., vs. State of Orissa, reported in 83 ITR 23 (SC) and in the case of CIT vs. Reliance Petroproducts (2010) 3 Taxmann.com 47; the order of ITAT Delhi Bench dated 11.03.2022 in and the order of the ITAT Pune Bench dated 30.11.2010 in ITA No.471/PN/2007, penalty on account of disallowance u/s 43B of the Act is not leviable u/s 271(1)(c) of the Act. The ld. Counsel also drew our attention to the judgement of Hon’ble Madras High Court in the case of CIT vs. MSK Construction (P) Ltd., 296 ITR 18 (Mad), wherein it has been observed that disallowance made u/s 43B of the Act does not amount to concealment within the meaning of section 271(1)(c) of the Act and submitted that penalty is not leviable on this account.
Replying to the above, the ld. Sr. DR strongly contended that the assessee filed its revised return of income declaring a loss of Rs.52,46,647/- after making disallowance u/s 43B on account of interest on bank loan amounting to Rs.1,95,07,494/-. Therefore, the AO initiated penalty proceedings on the basis
that the assessee had filed revised return after its case was picked up for scrutiny. Therefore, penalty has to be levied on the assessee u/s 271(1)(c) of the Act.
On careful consideration of rival submissions, we are of the considered view that undisputedly the AO in the order dated 28.12.2017 had observed that the return of income was revised after the receipt of notice u/s 143(3) when the case was picked up for scrutiny proceedings initiated. The ld. AO did not make any addition in this regard. However, in para 5 of the scrutiny assessment order noted that he is satisfied that to the extent of Rs.1,95,07,494/-, the assessee has concealed/furnished inaccurate particulars of income and penalty proceedings u/s 271(1)(c) had been initiated separately. This observation of the AO in para 5 clearly indicate that at the time of completing the assessment order, the AO himself was not sure as to whether the assessee has concealed the particulars of income or has furnished inaccurate particulars of its income, but, he shows his intention to initiate penalty proceedings separately. In the same way, in the penalty order dated 29.06.2018, the AO, in para 5, firstly observed that the assessee has furnished inaccurate particulars of income and, thereafter, in second limb of the said para noted that the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, penalty is calculated at minimum rate of 100%. From the first appellate order, we observe that the ld.CIT(A) has partly deleted the penalty on disallowance of amount forfeited of Rs.29,40,000/- by observing that the forfeited amount represents
AO had levied penalty on incorrect application of the facts of the case and the appellant company had rightfully claimed the deduction and no penalty should be levied in respect of the same. However, the ld.CIT(A) confirmed the penalty on account of interest expenses claimed and withdrawn in the revised return of income and this move by the assessee was picked up by the AO and the AO, without making any addition in this regard, proceeded to initiate penalty proceedings u/s 271(1)(c) of the Act.
The sole issue for our adjudication is whether the penalty on account of suo motu disallowance by the assessee in the revised return in accordance with the provisions of section 43B of the Act is leviable u/s 271(1)(c) of the Act on the assessee or not.
First of all, it is clearly visible from the assessment order that the AO had not made any addition/disallowance pertaining to the amount which was picked by the AO for levy of penalty u/s 271(1)(c) of the Act under the provisions of section 43B of the Act. However, after comparing the original and revised return, he noted that after receipt of scrutiny notice, the assessee had filed the revised return withdrawing the claim of Rs.1,95,07,494/- pertaining to interest on bank OD, interest on term loan and interest on LC and BG. As we have noted above, even while finalizing the assessment order, the AO was not sure about the charge/act of the assessee. Still he noted that the assessee has 271(1)(c) has been initiated separately.
Be that as it may, in the judgement in the case of CIT vs. Reliance Petroproducts (supra), the Hon’ble Supreme Court categorically held that making a claim which was not accepted or not found to be acceptable by the Revenue by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee, if the contention of the Revenue is accepted, then, in case of every return where claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(1)(c) of the Act which is clearly not the intention of the legislature. Similarly, the Hon’ble Madras High Court in the case of CIT vs. MSK Construction (P) Ltd. (supra) which was referred by the ITAT, Pune in the order dated 30.11.2010 (supra), it was observed that a disallowance made u/s 43B does not amount to concealment within the meaning of section 271(1)(c) of the Act. It is a peculiar factual position of the present case that the assessee filed original return of income making a claim of interest on various heads and, thereafter, revised the same withdrawing the impugned interest amount in view of the provisions of section 43B of the Act and the AO framed scrutiny assessment on the basis of the revised return without taking cognizance of the original return. But on conclusion of order the AO went on to compare the original return with the revised return and in the scrutiny assessment order, noted that penalty proceedings u/s 271(1)(c) has been initiated separately. 6
When the AO has not made any addition in the scrutiny assessment order and when, at the time of framing assessment, he was not sure about the charge against the assessee as to whether the assessee has concealed the particulars of income or has furnished inaccurate particulars of income, then, in view of the judgement of the Hon’ble Supreme Court in the case of Reliance Petroproducts (supra), the penalty is not leviable u/s 271(1)(c) of the Act on account of the trigger of the provisions of section 43B of the Act. Our view also gets strong support from the judgement of the Hon’ble Madras High Court (supra) which has been referred and followed by the ITAT Pune Bench in its order dated 30.11.2010 (supra). Therefore, in view of the foregoing discussion, we reach to a logical conclusion that the penalty imposed u/s 271(1)(c) by the AO and partly confirmed by the ld.CIT(A) on account of possible/imaginary disallowance u/s 43B of the Act is not sustainable. Therefore, the AO is directed to delete the penaly.