M/S INDU NISSAN OXO CHEMICALS INDS. LTD.,VADODARA vs. THE ACIT, CIRCLE-1(2),, BARODA

आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’C’’BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.2150/AHD/2015 �नधा�रण वष�/Asstt. Year: 2006-2007

M/s.Indu Nissan Oxo A.C.I.T, Chemicals Inds. Ltd., Vs. 103, 1st Floor, BhajwaChhani Road, Ayakar Bhawan, B/h. GSFC Complex, Race Course Circle, Bajwa, Dist. Baroda-39007. Vadodara-391310.

PAN: AAACI4359M

(Applicant) (Respondent) : Assessee by Shri S.N. Divetia, A.R : Revenue by Shri L.P. Jain, D.R सुनवाई क� तार�ख/Date of Hearing : 25/04/2019 घोषणा क� तार�ख /Date of Pronouncement: 14/05/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax,(Appeals)-1, Vadodara [Ld.CIT(A) in short], dated 07/05/2015 arising in the matter of assessment order passed under S.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 05/12/2008 relevant to assessment year (AY) 2006-07.

The assessee has raised the following grounds of appeal:

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1.1 The order passed u/s.250 on 07.05.2015 for A.Y. 2006-07 by CIT(A)-1, Baroda upholding the penalty of Rs.45,71,700/- levied u/s.271(1)(c) by AO is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld.CIT(A) has grievously erred in law and on facts in confirming the penalty of Rs.45,71,700/- levied u/s.271(1)(c) by AO . The Ld.CIT(A) has grievously erred in law and on facts in confirming the penalty levied u/s.271(1)9c) on the ground that the appellant had not come forward suo moto to file revised return. 1.3 That in the facts and circumstances of the case was well as in law, the Ld.CIT(A) ought not to have upheld the penalty of Rs.45,71,700/- levied u/s.271(1)(c) by AO. The Ld.CIT(A) has failed to appreciate that the interest exps. of Rs.1,35,82,090/- was duly debited to the P&L account and it was found to be genuine as well as the tax auditor had also disclosed in the tax audit report. It is, therefore, prayed that the penalty u/s.271(1)(c) as confirmed by the CIT(A) may kindly be deleted.

The only effective issue raised by the assessee is that the Ld. CIT-A erred in confirming the penalty levied by AO for Rs. 45,71,700/- on account of furnishing inaccurate particulars of income.

The assessee in the year under consideration has claimed the deduction of interest expenses payable to Bank of India and Union Bank of India amounting to Rs. 1,35,82,000.00 only. However, The AO was of the view that

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such amount cannot be allowed as deduction in view of the provision of section 43B(e) of the Act, i.e. the interest should have been paid on or before the due date of filing of income tax return as specified u/s 139(1) of the Act. Thus the assessment was reopened under section 147 of the Act on the ground that the assessee failed to make the payment such interest within the specified due date. Accordingly, the interest expenses claimed by the assessee was disallowed and added to the total income of the assessee.

Subsequently, the notice u/s 274 r.w.s 271(1)(c) of the Act was issued upon the assessee for levying the penalty u/s 271(1)(c) of the Act on account of furnishing inaccurate particulars of income.

2.1 The assessee in response to the notice issued u/s 274 of the Act made reply dated 14th July 2014. The details of the reply stand as under; a. The auditor of the company missed giving the effect of the amendment brought in the Finance Act 2003 whereby the payment of interest to the bank was subject to the deduction on actual payment. As such the payment of the interest to the scheduled bank was not covered under section 43B of the Act until such amendment brought in the statute.

b. The assessee has already made disallowance of interest expenses payable to financial institutions amounting to Rs. 1,93,10,506/- only. As such there was no reason to make the disallowance of Rs. 1,35,82,000/- in the computation of income. Moreover, the total income of the assessee would have been negative even after the disallowance of interest expenses of Rs. 1,35,82.00/-.

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2.2 In view of the above the assessee submitted that it has claimed the deduction of the interest expenses under the bonafide believe that same is allowable as a deduction under the Act.

However, the AO disregarded the contention of the assessee by observing that ignoring of the law cannot be the basis of claiming deduction under the provisions of law. Therefore the intention of the assessee was mala-fide and accordingly the deduction was claimed.

Similarly, the assessee by claiming a deduction of interest expenses is enhancing the amount of losses which will certainly be available for set off against the future income. Finally, the AO levied the penalty u/s 271(1)(c) of the Act for Rs. 45,71,700/- on account of furnishing inaccurate particular of income.

The aggrieved assessee preferred an appeal to the Ld. CIT (A).

2.3 The assessee before the Ld. CIT (A) submitted that the disallowance of interest expenses on the working capital loan was brought under the statute by the Finance Act, 2003 with effect from 1-4-2004. Being the recent amendment, the assessee omitted to make the disallowance of such interest inadvertently in the statement of income. Even the auditor failed to point out the disallowance u/s 43B of the Act as it was the recent amendment.

The return of income was filed at a loss amounting to Rs. 3,16,10,630/- only. As such there was not any tax liability on the assessee even after making the disallowance of the impugned interest expenses.

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2.4 The assessee has already made the disallowance of the interest expenses payable to the financial institution amounting to Rs. 1,93,10,506.00 only. Thus there was no reason for the assessee not to make the disallowance of the interest expenses described above but failed due to inadvertent mistake.

2.5 There was complete disclosure for the amount of the impugned interest in the financial statement which was duly audited under the Companies and Income-tax Act. Similarly, the explanation/details furnished qua the impugned interest expenses during the assessment proceedings were not found to be false. Therefore it can be concluded that the assessee has not furnished any inaccurate particular of income.

2.6 Even the AO failed to make the disallowances of such interest expenses in the assessment proceedings framed u/s 143(3) of the Act.

On the other hand, the ld. DR vehemently supported the order of the authorities below.

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The assessee in the instant case has not made the payment of such interest within the time as specified under section 43B of the Act and therefore the assessee was not entitled to the deduction from its income for such expense. The assessee during the assessment proceedings admitted the fact that it not eligible for deduction on account of such interest expense by virtue of the provision of section 43B of the Act.

On perusal of the financial statements of the assessee, we note that there was a disclosure regarding the default committed by the assessee for non-payment of interest to the bank. The relevant disclosure was made in the financial statements as under :

“(b) In respect of tem loans from financial institution, the company has defaulted in repayment of their dues. Following table brings out the amount of default and the period from which default is made. Sr.No. Term Loans Principal Intereset Total Default from (in Lacs) (In Lacs) (In commencing on Finanical Lacs) Principal Interest Institutuiions

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Sr.No. Cash Principal Intereset Total Default Credits (in Lacs) (In (In commencing on from Banks Lacs) Lacs) Principal Interest

Similarly, we also find that the CA also filed a letter issued admitting the mistake committed by him for not making the disallowance in its tax audit report on account of non-payment of interest to the bank. The copy of the CA letter is placed on pages 73 to 74 of the paper book.

In view of the above, we are of the opinion that the assessee has made sufficient disclosures in the financial statements and furthermore it should not be penalized on account of the mistake committed by the chartered accountants as discussed above. Therefore we are reluctant to confirm the penalty levied by the authorities below.

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In holding so, we find support and guidance from the judgment of Hon’ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. vs CIT reported in 25 taxmann.com 400 wherein, it was held as under: “The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The caliber and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income. Given the peculiar facts of this case, the imposition of penalty on the assessee is not justified. The assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars”

After considering the facts in totality as discussed above, we feel that there was no deliberate intention/ act on the part of the assessee to furnish the inaccurate particulars of income. We also find strength from the fact that there was no immediate tax benefit to the assessee by not disallowing the interest expenses in the given facts and circumstances since there was loss in the return of income filed by the assessee. Thus we reverse the order of the authorities below and direct the AO to delete the penalty imposed by him under section 271(1)© of the Act. Hence the ground of appeal of the assessee is allowed.

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-Sd- -Sd- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 14/05/2019 manish