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Facts
The assessee company, engaged in providing loans, filed its return declaring a loss. During the assessment, an addition was made for interest on debentures not correctly accounted for in earlier years. The AO initiated penalty proceedings under Section 271(1)(c) after the assessee's voluntary disallowance was not accepted. The CIT(A) upheld the penalty.
Held
The Tribunal condoned the delay in filing the appeal. It noted that the assessee had suo motu disallowed the expenditure and accepted the addition during assessment. The plea of no tax advantage due to continuous losses, though raised late, was considered.
Key Issues
Whether penalty under Section 271(1)(c) is leviable when the assessee suo motu disallows an expenditure and whether the absence of tax advantage due to continuous losses can be a ground for deletion of penalty, especially when such claims are made at a later stage.
Sections Cited
271(1)(c), 250, 143(3), 40(a), 115JB
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI ANIKESH BANERJEE
The instant appeal of the assessee was filed against the order of the National Faceless Appeal Centre (NFAC)-Delhi (in short, the ‘Ld.CIT(A)’) order passed u/s.250 of the Income Tax Appeal, 1961 (in short ‘the Act’) date of order 30.07.2021 for assessment year 2014-15. The impugned order emanated from the order of the Ld. Assistant Commissioner of Income Tax (ACIT), range 10(1)(2)-Mumbai (In short, the “Ld. AO”), order passed u/s.271(1)(c) of the Act date of order 23.02.2017.
AY: 2014-15 Kaycee Finstock Pvt Ltd 2. The assessee has taken the following grounds: “
Grounds:
1. On The Facts and circumstances of The Case, The Assistant Commissioner of Income Tax has erred in Law in Levying penalty under section 271(l)c) of Rs.88,52,490/- under section 271(1)(c) against concealment of Income Which is most Arbitrary and unjustified.
The Appellant craves to Leave, Add, Amend, any of The Grounds of Appeal.”
3. The brief facts of the case are that theassessee company engaged in business of providing loan against share to clients and funds arranged by refinance from other NBFC. The return of income was filed by declaring loss amount to Rs.11,86,42,780/- under normal provisions and book profit loss of Rs.16,47,38,264/- u/s.115JB of the Act, was filed by the appellant for impugned assessment year. The assessment was completed u/s.143(3) of the Act on dated 02.12.2016. During the assessment proceeding the Ld.AO found that the assessee company had reduced Rs.4,55,72,663/- from the taxable income on the ground that aforesaid amount represent interest on debenture written of and this amount was added to taxable income in computation of income u/s.40(a) of the Act in earlier assessment year. On verification, it was found that the assessee had added back interest amount to Rs.2,78,83,738/- only during earlier assessment years. After these observations the assessee filed a rectified computation during the assessment proceeding and explain that there is an apparent mistake by the auditor in related to adjustment of interest on debentures so this mistake is suomoto brought in the assessment proceeding and the rectification as done by the assessee by filing the rectified computation and confirm the addition. The alleged addition is confirmed amount to Rs.1,76,88,923/- (Rs.4,55,72,663/- - Rs.2,78,83,738/-). Finally, the assessment was completed, and the said amount was added back to the total income. The Ld. AO initiated the penalty proceeding u/s.271 (1)(c)/274 of the Act and the voluntary declaration of the assessee was not accepted by the Ld. AO and the Ld. AO imposed the penalty @ 100% of the tax sought to be evaded which comes to Rs.88,52,490/- u/s.271(1)(c) of the Act. The aggrieved assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) upheld the impugned penalty order. Being aggrieved on the impugned appeal order the assessee filed an appeal before us.
The assessee filed the appeal with the delay of 1175 days. The assessee filed the condonation petition along with sworn affidavit and delay is duly explained. The relevant part of the said affidavit is reproduced as below: “The appeal could not be filed within the prescribed period due to genuine and unavoidable circumstances. The order was passed during the second wave of the COVID-19 pandemic in Maharashtra, when stringent lockdown restrictions rendered our office non-operational. During this period, communication channels were severely disrupted, and the email communication regarding the said order was not received.
Subsequently, between 2021 and 2024, we received more than 25 income tax notices, including Show Cause Notices under Section 271(1)(c), which required substantial time and effort to compile information and provide responses while simultaneously managing our business operations. On 2nd March 2023, we submitted a detailed reply to one such notice, explicitly mentioning that our appeal against the assessment order was still pending with the CIT(A) and requested that penalty proceedings be kept in abeyance. Despite this, no further action communication was received from the Income Tax Authorities.
It was only on 29th November 2024, while addressing a notice from the Centralized Processing Center (CPC) regarding outstanding demands, that we became aware that the penalty order had already been finalized and that the statutory timeline for filing an appeal had lapsed.
The delay of approximately 1175 days in filing the appeal was entirely unintentional and arose from bona fide circumstances beyond our control. There was no malafide
An application has been filed requesting this Hon'ble Tribunal to kindly condone the delay in filing the appeal and admit it for adjudication in the interest of justice and equity.
I solemnly affirm that the statements made above are true and correct to the best of my knowledge and belief, and nothing material has been concealed herein.”
Considering the above, the Ld. DR raised an objection regarding the inordinate delay on the part of the assessee. However, the delay has been satisfactorily explained, and we are of the view that sufficient cause has been demonstrated for its condonation. Accordingly, the delay of 1175 days is hereby condoned, and the matter is taken up for adjudication on merits.
6. Ld. AR argued and stated that, the assessee in continuing the loss in earlier years and also the preceding years. Assessee has not got any benefit of this expenses. Further during the assessment proceeding the entire mistake was rectified and assessee suomoto rejected the expenses amount to Rs.1,76,88,923/-U/s 40(a) of the Actand disallowed the same. The Ld. AR invited our attention in impugned assessment order & the relevant paragraph of the penalty order is reproduced has below: “a. Under normal provisions of the Act It was observed that the assessee company had reduced Rs. 4,55,72,663/- from the taxable income on the ground that the aforesaid amount represent interest on debenture written of and this amount was added to taxable income in computation of income u/s 40(a) in earlier assessment years. However, on verification it was found that the assessee had added back interest amount of Rs. 2,78,83,738/- only during the earlier assessment years. Therefore, addition of Rs. 1,76,88,923/- (4,55,72,663-2,78,83,738) was made to total income under the normal provisions of the Act.
AY: 2014-15 Kaycee Finstock Pvt Ltd b. Under 115JB It was observed that the assessee company had reduced Rs. 4,55,72,663/- from the book profit on the ground that the aforesaid amount represent interest on debenture written of and this amount was added to book profit in earlier assessment years. However, on verification it was found that the assessee had not added back interest amount of Rs. 4,55,72,663/-during the earlier assessment years. Therefore, addition of Rs. 4,55,72,663/- was made to book profit computed under section 115JB of the Act. During the course of assessment proceedings, on being confronted, accepted the additions.”
The Ld. AR, in the course of his submissions, placed reliance on the judgment of the Hon’ble Supreme Court in Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 348 ITR 306 (SC), wherein the Hon’ble Apex Court affirmed the order of the ITAT deleting the penalty levied under section 271(1)(c) on the ground that the imposition of penalty on the assessee was not justified since 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.
7.1. The Ld. AR further submitted additional evidence to demonstrate that the impugned expenditure did not confer any tax advantage on the assessee, as the assessee has been incurring losses from earlier as well as in prior years. A year-wise statement of income and loss has been placed on record in support. The details chart in tabular form is reproduced as below: - “Chart showing returned income and position of carry forward losses for AY 2014-15 to 2022-23.
Asst Year Date of filing Income/(Loss) B/f losses Loss C/f Losses returned adjusted 2014-15 29/9/2014 (118,642,780) (859,362) - (119,502,142)
2015-16 31/3/2017 (649,295) (119,502,142) - (120,151,437) 2016-17 6/4/2017 (11,139,891) (120,151,437) - (131,291,328) 2017-18 2/11/2017 (12,933) (131,291,328) - (131,304,261) 2018-19 11/10/2018 3,574,764 (131,304,261) 3,574,764 (127,729,497) 2019-20 24/4/2023 (2,046,253) (127,729,497) - (129,775,750) 2020-21 6/1/2021 5,857,390 (129,775,750) 5,857,390 (123,918,360) 2021-22 29/12/2021 12,475,045 (123,918,360) 12,475,045 (111,443,315) 2022-23 1/11/2022 12,010,195 (111,443,315) 12,010,195 (99,433,120)
From the above chart it is very clear that even after addition of Rs. 1,76,88,923/- in AY 2014- 15, the returned loss reduced to Rs. 10,09,53,860/-. Out of which only 3,39,14,394/- adjusted in AY 2018-19, 2020-21 &2022-23 and balance loss of Rs. 8,47,25,386/- lapsed in AY 2022- 23. This clearly shows that the assessee has not taken advantage of losses of the amount added in AY 2014-15.”
In continuation, the Ld. AR also relied on the judgment of the Hon’ble Bombay High Court in CIT v. Garware Chemicals Ltd., of 2012, order dated 10thMarch 2014, paragraphs 5 and 6 of which were specifically cited before the Bench which are reproduced as below: - “5. However, the Tribunal in paragraph 6 of the impugned order has held that this was not a simple case of increase of authorized capital because the assessee has sought to issue to the IDBI Bank the optional convertible debentures in view of the restructuring scheme of the said Bank. The assessee was not trying to seek and tax advantage because even after disallowance of this expenditure, huge loss was assessed. In such circumstances in the opinion of the Tribunal, this was not the case falling within the purview of the provisions enabling imposition of penalty.
In any event this was not the matter which would enable the assessing officer to exercise his discretion and impose penalty on the grounds permissible and particularly under section 271(1)(c) of the Income Tax Act, 1961. To our mind, such findings of fact and rendered in the light of legal provision, do not give rise to any substantial question of law. The appeal is, therefore, devoid of any merit and is dismissed. No costs.”
The Ld. DR submitted that had the case not been selected for scrutiny assessment, the assessee would have derived an undue benefit from the said expenditure, as no disallowance would have been made under section 40(a) of the Act. It was only during the scrutiny proceedings that the Assessing Officer detected the discrepancy in the return filed by the assessee. The Ld. DR supported the orders passed by the revenue authorities and drew our attention to paragraphs 3.1.6 and 3.1.7 of the impugned appellate order, which are reproduced below:- “3.1.6. If a person obliged to furnish the particulars of his income omits to furnish them, he thereby conceals the particulars. The concealment may take various forms. A glaring illustration of concealment would be where the assessee does not disclose or fully disclose in the return the income derived by him which would fall under a particular head, e.g., Income from other sources, while disclosing his income falling under other heads of income prescribed by section 14. To the extent he does not disclose that income; he conceals the particulars of income. The obligation is not only to disclose particulars of income but to disclose them correctly and completely. If while disclosing the particulars of income in the return he puts them under a wrong head, he can be said to be furnishing inaccurate particulars of income. The particulars of income can be made inaccurate in a variety of ways, a glaring illustration of which would be where the assessee while stating the income under a particular head, works out the income chargeable to tax after making deductions which are falsely made. Such a process would make the particulars of income inaccurate. In all such cases, whether the income is not disclosed against the constituent item of the return in which it falls or is partly not disclosed, or the particulars of income given in the return are incorrectly stated by any machination, the impact is bound to be on the figure of gross total income to be mentioned under various heads of income and also on the total income chargeable to tax. In fact, reducing the figure of income that would be chargeable to tax would be for the purpose of concealment of particulars of income or giving inaccurate particulars of income. The expression particulars of income would have relevance to all the particulars of income which the assessee is required to give in his return fully and truly, including the particulars of income chargeable to tax under various heads and the total income. Therefore, any concealment or inaccuracy in the particulars of income in the return occurring at any stage up to and inclusive of the ultimate stage of working out of total income, would attract the penalty provision of section 271(1)(c) of the Act. Every figure in the return which is set opposite to the item of income is a particular of income, whether the figure is one which is stated independently of anything else that appears in the return or the documents accompanying it or whether it is something derived from other figures elsewhere AY: 2014-15 Kaycee Finstock Pvt Ltd stated in such return or documents. False result may be produced by the falsity of one or more of the constituent items in the return. The words inaccurate particulars would cover falsity in the final figure as also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of income or the end result.
In the case of MAK Data (P) Ltd. v. CIT-II (2013) 38 taxmann.com 448 (SC) it was held that, “Voluntary disclosure does not release assessee from mischief of penal proceedings under section 271(1)(c) in terms of section 271(1)(c), Assessing Officer has to satisfy whether penalty proceedings be initiated or not during course of assessment proceedings and Assessing Officer is not required to record his satisfaction in a particular manner or reduce it into writing” 3.1.7. In view of the above facts and circumstances, it is evident that the appellant had deliberately and intentionally not disclosed the true and correct income and has furnished the inaccurate particulars of income with the intention to evade tax. Hence the AO has rightly imposed the penalty u/s 271(1)(c) of the Act and the imposition of penalty is upheld and grounds of appeal is Dismissed.”
We have heard the rival submissions and perused the material available on record. It is observed that during the course of assessment proceedings, the assessee suomotu disallowed the impugned expenditure and accepted an addition of Rs.1,76,88,923/-. However, no revised return was filed by the assessee. It is evident that had the case not been selected for scrutiny, the said disallowance would not have come to light, and the assessee would have availed the benefit of such deduction in contravention of the provisions of law. On the other hand, the assessee contends that the said error was inadvertent and a bona fide mistake, and reliance is placed on the decision of the Hon’ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. (supra). In support, the Ld. AR has filed additional evidence to demonstrate that no tax advantage accrued to the assessee as the entity had incurred business losses. It is submitted that the assessee has been continuously incurring losses, and the disallowance in question did not result in any tax benefit. In this context, AY: 2014-15 Kaycee Finstock Pvt Ltd reliance is also placed on the decision of the Hon’ble Jurisdictional High Court in Garware Chemicals Ltd. (supra). We note, however, that the plea regarding the absence of tax advantage owing to continuous losses was neither raised before the Ld. CIT(A) nor before the Ld.AO. Nevertheless, the assessee is entitled to submit additional evidence before the Tribunal, and the same has been duly admitted with the consent of the Ld. DR. The additional evidence pertains to factual aspects relevant to the present case.Accordingly, we deem it appropriate to remand the matter to the file of the Ld. AO with a limited direction to verify the claim of losses incurred by the assessee during the relevant assessment year and in preceding years, in light of the judgment of the Hon’ble Jurisdictional High Court. The Ld. AO shall thereafter adjudicate the issue of levy of penalty in accordance with law, considering the above observations. Needless to state, the assessee shall be afforded a reasonable opportunity of being heard in the set-aside proceedings. At the same time, the assessee is expected to be diligent and cooperative to ensure expeditious disposal of the matter.