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Facts
The assessee, Huhtamaki Foodservice Packaging India Pvt. Ltd., appealed against a penalty order for AY 2015-16. The penalties arose from additions made regarding expenditure on authorized share capital, foreign exchange loss, and an unoffered interest income. The assessee contended these were bona fide mistakes or differences of opinion.
Held
The Tribunal held that mere claims not sustainable in law do not amount to furnishing inaccurate particulars. The disallowances in this case were due to differences of opinion and bona fide mistakes, not wilful concealment or inaccuracy. Therefore, the penalties levied under section 271(1)(c) were not justifiable.
Key Issues
Whether penalties under section 271(1)(c) are justifiable when additions are based on differences of opinion or bona fide mistakes, rather than concealment or furnishing of inaccurate particulars of income.
Sections Cited
271(1)(c), 143(3), 250
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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANTSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 25/11/2025 Date of Order - 28/11/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 22.07.2025, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], which in turn arose from the penalty order under section 271(1)(c) of the Act, for the assessment year 2015-16.
In this appeal, the assessee has raised the following grounds: “
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the penalty of Rs. 8,49,310 levied u/s. 271(1)(c).
2. On the facts and circumstances of the case and in law, the Ld. CIT (A) ought to have appreciated that the learned Assessing Officer had erred in initiating penalty proceedings u/s 271(1)(c) without mentioning specifically as to whether penalty is sought to be levied for "concealing the particulars of his income" or "furnishing inaccurate particulars of his income” and, therefore, the consequential order passed levying penalty was invalid and bad in law.
3. On the facts and circumstances of the case and in law, the Ld. CIT (A) ought to have appreciated that it could not have been said that the appellant had furnished inaccurate particulars of income merely because the expenses claimed by it were disallowed on the ground that they were capital in nature.”
3. The first issue that arises for our consideration pertains to the levy of a penalty under section 271(1)(c) of the Act in respect of the disallowance of expenditure incurred by the assessee for an increase in authorised share capital.
4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee company is a supplier of a comprehensive range of paper cups for both domestic and international market. For the year under consideration, the assessee filed its return of income on 29.09.2015, declaring a loss of Rs.4,07,81,021/-. During the assessment proceedings, it was observed that the assessee has increased its authorized share capital. Accordingly, the assessee was asked to furnish the details of expenditure incurred for increase in share capital and was also directed to explain its treatment in the books of account. In response, the assessee submitted that an amount of Rs.8,02,750/- was incurred towards the increase in share capital and the same was clubbed with ROC charges and debited to the P & L account claiming it as a revenue expenditure. The Assessing Officer (“AO”), vide order dated 20.12.2017 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held the expenditure incurred for increase in the authorized share capital to be capital in nature. Accordingly, the AO made an addition of Rs.8,02,750/- to the total income of the assessee. The AO separately directed initiation of penalty proceedings for furnishing inaccurate particulars of income. Accordingly, vide order dated 20.06.2018 passed under section 271(1)(c) of the Act, the AO levied penalty, inter alia, in respect of disallowance of expenditure incurred for increase in authorized share capital.
The learned CIT(A) vide impugned order dismissed the grounds raised by the assessee on this issue and upheld the penalty levied by the AO under section 271(1)(c). Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Authorized Representative (“learned AR”) submitted that the treatment of expenditure incurred for increase of authorized share capital as revenue in nature was completely due to bona fide mistake on the part of the assessee and there was no furnishing of inaccurate particulars or concealment of income in respect of particulars of income justifying penalty under section 271(1)(c) of the Act, as all the details form part of the record.
From the perusal of the record, it is evident that the entire basis of penalty on this issue is on account of treatment of expenditure as capital as against revenue expenditure claimed by the assessee. Thus, it is evident that it is not a case where the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income, and rather it is a case where the claim of the assessee was denied due to divergence of opinion.
We find that while examining the meaning of the term “particulars” in section 271(1)(c) of the Act, the Hon’ble Supreme Court in CIT v/s Reliance Petroproducts (P) Ltd., reported in [2010] 322 ITR 158 (SC), held that 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. The relevant findings of the Hon’ble Supreme Court, in the case cited supra, are as follows: – “9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as :— "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." 10. We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous 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. Such claim made in the Return cannot amount to the inaccurate particulars.”
7. Therefore, respectfully following the decision of the Hon’ble Supreme Court in Reliance Petroproducts (P) Ltd. (supra), we are of the considered view that the levy of penalty u/s 271(1)(c) of the Act on this issue is not justifiable, and the same is accordingly deleted.
The next issue that arises for our consideration pertains to the levy of a penalty under section 271(1)(c) on account of a foreign exchange loss claimed by the assessee.
The brief facts of the case pertaining to the issue are that during the assessment proceedings, upon perusal of the profit and loss account, it was observed that an amount of Rs.19,81,380/- was debited by the assessee towards foreign exchange loss. Further, on perusal of the fixed asset schedule, it was observed that the assessee has purchased imported machinery and put the same to use during the year under consideration. Accordingly, the assessee was asked to furnish details of the transaction in which a foreign exchange loss was incurred. Upon perusal of the details submitted by the assessee, it was observed that the assessee has reinstated buyers' credit in foreign exchange of Rs. 19,79,364/-, which was on account of plant & machinery. Since the foreign exchange loss was on account of the purchase of a fixed asset, the AO vide order passed under section 143(3) of the Act held that the said loss needs to be capitalised with the cost of the asset. Accordingly, the AO treated the foreign exchange loss as capital in nature and allowed depreciation at 15% of the value of the asset after capitalising the foreign exchange loss. Accordingly, the AO made a net disallowance of Rs.16,82,460/-, after allowing depreciation of Rs.2,96,904/-. Consequently, a penalty under section 271(1)(c) of the Act was levied, inter alia, on this disallowance.
During the hearing, the learned AR submitted that there is no wilful furnishing of inaccurate particulars of income and concealment of income on this issue, and the entire addition is due to a difference of opinion between the assessee and the Revenue.
Having considered the submissions of both sides and perused the material on record, it is evident that out of the foreign exchange loss amounting to Rs. 19,79,364/- claimed by the assessee as revenue expenditure, the AO only made an addition to an extent of Rs. 16,82,460/-, allowing the depreciation @ 15%. Therefore, it is evident that it is merely a timing issue, as the assessee was claiming the entire loss in the year under consideration; however, the AO agreed to allow the loss to an extent of 15% by way of depreciation each year. Thus, we are of the considered view that it is not a case where the assessee has concealed the particulars of its income or furnished inaccurate particulars of such income. Therefore, respectfully following the decision of the Hon’ble Supreme Court in Reliance Petroproducts (P) Ltd. (supra), we are of the considered view that the levy of penalty under section 271(1)(c) of the Act on this issue is not justifiable, and accordingly, the same is deleted.
The last issue that arises for our consideration pertains to the levy of a penalty on account of an addition made due to reconciliation with Form 26AS.
The brief facts of the case pertaining to this issue are that during the assessment proceedings, the assessee was asked to furnish a reconciliation of receipts and TDS as per the books vis-à-vis receipts and TDS as per Form 26AS reported in the ITS details. Upon perusal of the reconciliation furnished by the assessee, it was observed that the assessee has shown interest received from Maharashtra State Electricity Distribution Company Ltd. of Rs.91,966/-. As per the assessee, out of the aforesaid interest income, an amount of Rs. 78,470/- was adjusted in the power bill for the month of May, 2015, against the electricity expenditure. Since the balance amount of Rs. 13,496/- was not offered to tax by the assessee, the AO vide order passed under section 143(3) of the Act made an addition to that extent. Consequently, a penalty under section 271(1)(c) of the Act was levied, inter alia, on this issue.
During the hearing, the learned AR submitted that due to a bona fide mistake, an amount of Rs. 13,496/- was not offered to tax by the assessee, and such difference only to its knowledge upon reconciling the details in Form 26AS with the receipt and TDS as per the books of the assessee. Therefore, the learned AR submitted that there was no wilful intention of the assessee in this regard.
Having considered the submissions of both sides and perused the material on record, it is evident that out of the total interest income of Rs.91,966/- the Maharashtra State Electricity Distribution Company had already adjusted an amount of Rs.78,470/- against the electricity expenditure for the month of May, 2015 and only an amount of Rs.13,496/- was the extra credit in the account of the assessee. In the present case, it cannot be disputed that the assessee is running a business and therefore requires a continuous supply of electricity. Any excess payment received by the assessee can be adjusted against future power bills. It is further pertinent to note that this aspect also came to notice only upon reconciliation with the details in Form 26AS with the receipt and TDS as per the books of the assessee, and therefore cannot be treated as concealment of particulars of income or furnishing inaccurate particulars of income. Consequently, in the peculiar fact, we are of the considered view that the penalty on such a minuscule amount of excess payment from the aforesaid distribution company is not justifiable. Accordingly, the same is deleted.
Accordingly, Grounds No.1 and 3 raised in assessee’s appeal are allowed.
During the hearing, the learned AR submitted that if the relief is granted on Grounds No.1 and 3, the issue arising in Ground No.2 may be treated as not pressed. In light of the submission of the learned AR and our findings as rendered in the preceding paragraphs, Ground No.2 is dismissed as not pressed.
In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 28/11/2025