VEENA INDUSTRIES PVT LTD,PUNE vs. DCIT CENTRAL CIRCLE2(1), PUNE

2872, 2873 & 2874/PUN/2025 3. First, we shall take up the appeal of the assessee in for adjudication as the lead case. ITA No.2874/PUN/2025, A.Y. 2009-10 : 4. The appellant has raised the following grounds of appeal :-

Being aggrieved with the above penalty order, the assessee preferred an appeal before Ld. CIT(A). After considering the submissions of the assessee, Ld. CIT(A) dismissed the appeal filed by the assessee and confirmed the penalty imposed u/s 271(1)(c) of the IT Act.

We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book furnished by the assessee. In ground nos.1 & 2, the assessee has challenged the levy of penalty u/s 271(1)(c) of the IT Act. In this regard, we find that the Assessing Officer found that no services were actually rendered by M/s Metal Linkers to the assessee and it was also confirmed by Viom Network Ltd. and Huawai Telecommunication India Pvt. Ltd. that M/s. Metal Linkers International Ltd. was not the mediator hence the commission expenditure in respect of M/s. Metal Linkers International Ltd. to the tune of Rs.1,82,13,037/- is not genuine and accordingly the same was disallowed and added to the income of the assessee and penalty u/s 271(1)(c) for furnishing inaccurate particulars of income was levied. Similarly, the Assessing Officer found that commission of Rs.13,00,000/- was paid to M/s. Karan Enterprises (Rs.7,00,000/-) and M/s. Shiva Engineers (Rs.6,00,000/-) and issued notice u/s 133(6) of the IT Act to both the above parties, however the letters were returned back unserved. Further opportunity was also provided to the 2872, 2873 & 2874/PUN/2025 assessee to furnish the bills and TDS certificates in respect of payment to these parties but assessee could not furnish the details. Accordingly, the Assessing Officer disallowed the above expenses of Rs.13,00,000/- and added the same to the income of the assessee and subsequently penalty u/s 271(1)(c) of the IT Act was also levied for furnishing inaccurate particulars of income. Under the above facts and in the circumstances of the case, we are of the considered opinion that the assessee has furnished inaccurate particulars of income and therefore liable for penalty u/s 271(1)(c) of the IT Act, accordingly ground nos.1 & 2 are dismissed.

It is the alternate plea of the counsel of the assessee that the penalty, if any, is required to be levied only on the quantum addition which was sustained by Ld. CIT(A). In this regard, we find that the order dated 09.03.2016 passed u/s 143(3) r.w.s. 153A of the IT Act, additions of Rs.15,87,80,162/- were made, subsequently Ld. CIT(A) vide order dated 28.10.2019 deleted the addition of Rs.14,44,27,434/- accordingly quantum addition of only Rs.1,43,52,728/- was sustained. However, we find that the penalty u/s 271(1)(c) of the IT Act was calculated on quantum addition of Rs.1,95,13,037/- (1,82,13,037 + 13,00,000) which is a 2872, 2873 & 2874/PUN/2025 mistake apparent on the face of the record. In this regard, we further find that even in order giving effect which is produced before the bench the Assessing Officer himself has determined total income of Rs.8,59,97,516/- as against the income of Rs.7,16,44,790/- returned by the assessee, which is resulting in an addition of only Rs.1,43,52,728/-. Consequently, the penalty u/s 271(1)(c) of the IT Act, if any, could be levied only on the basis of quantum addition of Rs.1,43,52,728/- only.

Considering the totality of the facts of the case and in view of above discussion, we deem it appropriate to set-aside the order passed by Ld. CIT(A) and direct the Assessing Officer to recalculate the penalty u/s 271(1)(c) of the IT Act on the basis of quantum addition of Rs.1,43,52,728/- only. Accordingly, the alternate plea of the assessee is allowed.

In the result, the appeal of the assessee in for A.Y. 2009-10 is partly allowed.

In the result, the appeal of the assessee in A.Y. 2010-11 is partly allowed.

Being aggrieved with the above penalty order, the assessee preferred an appeal before Ld. CIT(A). After considering the submissions of the assessee, Ld. CIT(A) appeal dismissed the appeal filed by the assessee and confirmed the penalty of Rs.46,59,640/- imposed u/s 271(1)(c) of the IT Act by observing as under :- “5.5.1 The appellant's main plea is that all facts relating to commission expenditure and preliminary expenses were duly 2872, 2873 & 2874/PUN/2025 disclosed, and therefore no penalty under section 271(1)(c) can be levied. The appellant has also argued that the claim of commission payment was made on the basis of agreements and TDS deductions. and the disallowance arose only because the authorities did not accept the evidence as sufficient. It has further been contended that the disallowance relating to commission expenses is tax neutral in view of deduction u/s 801B(4) available to the Silvassa Unit, and hence no motive to conceal income or furnish inaccurate particulars can be attributed. 5.5.2 These arguments, however, cannot be accepted in light of the factual position established by the Assessing Officer. The appellant claimed commission expenditure of Rs. 2,43,335/- payable to M/s Rathi Super Steel Ltd. as mediator in securing business. The AO, on the basis of seized emails and confirmations obtained from the appellant's customers, established that the said party had no role in the procurement or negotiation of orders. The alleged intermediary services were, in fact, carried out by the appellant's own employees. During the assessment proceedings. the Assessing Officer examined the veracity of the claim by directly verifying from the customers Huawei Telecommunications India Pvt. Ltd. & Viom Networks Ltd. The responses categorically confirmed that M/s. Rathi Super Steel Ltd. had played no role in procuring orders or facilitating any transaction. Thus, the core premise of the appellant's claim that Rathi Super Steel Ltd acted as mediator stood disproved by independent third-party evidence. No contemporaneous evidence such as correspondence, minutes, or communication substantiating the intermediary's role was produced by the appellant. On the contrary, the documentary evidence gathered during search clearly disproved the appellant's claim. Thus, the claim of commission expenditure was not a case of a debatable interpretation but a clear case of making a false claim. Furnishing agreements and deducting TDS cannot substitute for the requirement of proving actual services rendered. Therefore, the appellant's explanation cannot be accepted as bona fide, and the disallowance represents income in respect of which inaccurate particulars were furnished. 5.5.3 The contention regarding tax neutrality is also without merit. Penalty under section 271(1)(c) is linked to the act of furnishing inaccurate particulars of income or concealment of income, and not to whether such addition ultimately alters the quantum of tax payable or losses carried forward. What is relevant is whether a false claim has been made in the return of income, and in this case, there is positive evidence that the appellant's claims were unsustainable. 5.5.4 In view of the above facts, I hold that the appellant failed to substantiate its explanation, which is neither bona fide nor 2872, 2873 & 2874/PUN/2025 supported by material evidence. The conditions of Explanation 1 to section 271(1)(c) are attracted, and the penalty levied by the AO is justified. Accordingly, the penalty levied by the Assessing Officer on this issue is upheld. Findings on Penalty in respect of Rs. 1,41,20,257/- (Waiver of Interest): 5.6.1 From the records, it is evident that out of the total amount of Rs. 24,96,68,439/- written off by HSBC Bank and Barclays Bank under the one-time settlement, a portion of Rs. 1,41,20,257/- represented interest liability. This interest had already been claimed by the assessee as revenue expenditure in the earlier assessment years and deduction had been allowed accordingly. Subsequently, when the banks waived this liability, the amount ceased to be payable. By the express provisions of section 41(1) of the Act, such remission of a liability that was earlier claimed as a deduction automatically becomes taxable in the year of waiver. 5.6.2 The assessee, however, treated the entire waiver of Rs. 24,96,68,439/- as a capital receipt and reduced it from the computation of taxable income. This conscious action of treating even the waiver of interest as a capital receipt is contrary both to the settled principles of law and to the factual position of the case. The assessee was fully aware that the interest portion had been claimed as deduction in the earlier years and had been allowed as such, yet it proceeded to reduce this sum from its total income while filing its return. This shows that the assessee not only failed to disclose the correct particulars but also furnished inaccurate particulars of income with respect to the sum of Rs. 1,41,20,257/-. 5.6.3 The explanation offered by the assessee that the entire waiver was disclosed in the financial statements under "exceptional items" and therefore there was no concealment, is not sufficient to absolve it from penalty. Disclosure in the financial statements cannot substitute for correct reporting in the return of income. What is material under section 271(1)(c) is whether the particulars furnished in the return are accurate and in accordance with the law. In this case, while the assessee disclosed the fact of waiver, it deliberately adopted an incorrect treatment in the computation of income by reducing even the interest portion as if it were a capital receipt. Such an explanation cannot be regarded as bona fide, because the assessee was aware of the nature of the waiver and its taxability under section 41(1). 5.6.4 It is also important to note that this is not a case of mere difference of opinion or debatable claim. The distinction between waiver of principal (capital in nature) and waiver of interest (revenue in nature and taxable u/s 41(1)) is well established and unambiguous.

It is the above order against which the assessee is in appeal before this Tribunal.

We have heard Ld. counsels from both the sides and perused the material available on record. In this regard, we find that the penalty u/s 271(1)(c) of the IT Act of Rs.46,59,640/- was levied on the basis of two additions. First on the basis of disallowance of commission expenses of Rs.2,43,335/- and secondly on the basis of addition of Rs.1,41,20,527/- u/s 41(1) of the IT Act regarding waiver of interest component on loan in one time settlement. With regard to penalty on the basis of disallowance of commission expenses of Rs.2,43,335/-, we find that the Assessing Officer conducted enquiry from Viom Networks & Huawai Telecommunication India Pvt. Ltd. and they confirmed that there was no mediator therefore the Assessing Officer disallowed the commission expenses paid to Rathi Super Steel Ltd. Considering the above fact, we are of the view that the assessee has furnished inaccurate particulars of income and therefore the disallowance of commission expenses of Rs.2,43,335/- attracts penalty u/s 2872, 2873 & 2874/PUN/2025 271(1)(c) of the IT Act. Accordingly, we confirm the proportionate penalty u/s 271(1)(c) of the IT Act on account of disallowance of commission expenses of Rs.2,43,335/-.

Regarding levy of penalty on the basis of addition of Rs.1,41,20,527/- u/s 41(1) of the IT Act, we find that the assessee has not furnished inaccurate particulars of income since the outstanding amount was waived off by banks under one time settlement and the assessee was under bonafide belief that the impugned amount of Rs.1,41,20,527/- was not required to be added in the income since assessee has paid Rs.7,25,00,000/- for waiver of bank loan liability under one time settlement scheme. In this regard, we find support from the decision passed by a coordinate bench of this Tribunal in the case of Mula Pravara Electric Co-Operative Society Ltd. vs. DCIT [2015] 60 taxmann.com 424 (Pune – Trib.) wherein under more or less similar facts the Tribunal deleted the penalty u/s 271(1) c of the IT Act & allowed the appeal of the assessee by observing as under :- “20. In the present case, the AO has levied the penalty under s. 271(1)(c) on the specific charge of furnishing inaccurate particulars of income and the same has been endorsed by the learned CIT(A) while confirming the penalty. A penalty under s. 271(1)(c) can only be imposed if the mandates of the said section are fulfilled and it is not an automatic consequence of an addition made to the income of the assessee in the course of assessment proceedings. The finding 2872, 2873 & 2874/PUN/2025 recorded in the assessment order may constitute good evidence in the penalty proceedings but those findings cannot be regarded as a conclusive proof for the purpose of levy of the penalty and addition being made to the income does, because of impact of Expln. 1, effectively raised a presumption against the assessee but that is entirely rebuttable presumption and the same of rebuttal is provided in the Explanation itself. There is no dispute about the fact that the assessee has consistently taken the stand from the very beginning that the benefit received or accrued in consequence of the Govt. Resolution dt. 21st May, 1999 are to be spread over from 1977-78 to 1999-2000 which is a period covered in the said GR. The expressions "inaccurate" and "particulars" have been explained by the Hon'ble Supreme Court in the decision of Reliance Petroproducts (P.) Ltd. (supra). We have examined the explanation of the assessee in the backdrop of Expln. 1 of s. 271(1)(c) and it cannot be said that the explanation is not bona fide as the assessee has placed all the facts on record which are required for computation of the income. The only dispute is the applicability of s. 41(1) of the IT Act. As rightly argued by the learned counsel, tax law is such complex it cannot be said that there was some conscious act on the part of the assessee for not considering s. 41(1) to the extent, of benefit accrued vide Govt. Resolution dt. 21st May, 1999 by the reduction of the MSEB liability. We are, therefore, of the opinion that there was no justification on the part of the AO for levying the penalty on the assessee under s. 271(1)(c) of the Act. We, accordingly, delete the penalty levied by the AO and allow the grounds taken by the assessee.

In the result, the assessee's appeal is allowed.”

Respectfully following the above decision of the Tribunal (supra), we are of the considered opinion that under the facts and circumstances of the instant case the addition of Rs.1,41,20,527/- u/s 41(1) of the IT Act does not attract penalty u/s 271(1)(c) of the IT Act, therefore, we deem it appropriate to set-aside the order passed by Ld. CIT(A) and direct the Assessing Officer to delete the proportionate penalty u/s 271(1)(c) of the IT Act calculated on the