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Income Tax Appellate Tribunal, DELHI BENCH “F” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI L.P. SAHU
PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the assessee against the impugned order dated 19.12.2018, passed by Ld. Commissioner of Income Tax (Appeals)-XXIV, New Delhi, in relation to the penalty proceedings u/s.271(1)(c) for the Assessment Year 2014-15. The assessee is mainly aggrieved by levy of penalty u/s. 271(1)(c) for a sum of Rs.14,31,07,613/- on account of disallowance made u/s.43B.
The facts in brief qua the levy of penalty are that, assessee is a manufacturer of stainless steel, SS Flats, SSHR
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coil, SSCR coil & SS pipes etc from the Plant located in Uttarakhand. It had been stated from the records that assessee have been incurring huge losses year after year and there were carry forward losses and depreciation coming from the Assessment Year 2012-13 which aggregated to Rs.155.35 crores. The assessee had availed various credit facilities from financial institutions and banks for setting up of the business and for operations. Unfortunately, there was a severe flood in factory area in August, 2011 due to cloud burst and since then assessee had suffered huge losses as operation could not be carried out and consequently the assessee was not in a position to pay the installment of the loan and interest on the loan borrowed by it. Thereafter Assessee Company had applied for restructuring of loan under ‘Corporate Debt Restructure Scheme (CDR) with banks and financial institutions under which interest on the existing loan was to be funded from ‘Fund Interest Term Loan’ (FITL) and interest on FITL was only remained payable by the assessee. Accordingly, all banks sanctioned FITL for the payment of interest on the original loan. In the audited balance-sheet and P&L account for the year ending 31st March, 2014, signed on 28.11.2014, the assessee-company had disclosed this fact regarding the status of payment of interest in the following manner:- “As per CDR scheme overdue/irregular balance of working capital loan has been converted into ‘working capital term loan’ (WCTL) and interest on Term Loan, Cash Credit and WCTL for the period has been converted into ‘Funded Interest Term Loan (FITL)”
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The total interest debited in the P&L account was Rs.50,87,83,083/- on original loan, out of which sum of Rs.48,18,93,419/- was remained unpaid and it was paid from FITL sanctioned by the banks. The assessee had paid interest on FITL amounting to Rs.6,08,64,843/-. In the audit report, the auditors have opined that interest to the extent payable on FITL was to be disallowed and accordingly, auditors have qualified sum of Rs.6,08,64,843/- for the disallowance u/s.43B of the Income Tax Act, 1961. Based on this audit report, the assessee had filed its return of income on 30.11.2014 by way of e-filing. Thereafter, notice u/s. 143(2) was issued on 28.08.2015 and further notice u/s. 142(1) was issued on 06.04.2016 and 02.08.2016. On 26.08.2016 auditors revised the tax audit report and uploaded the same on the Income Tax site, wherein they had disallowed the amount reported in the audit report at Rs.48,18,93,419/- in place of previously reported disallowance of Rs.6,08,64,813/-. The reason for revising original report in 3CD dated 26.08.2016 was reported as under: Revised/original Revised Reason 1 Change in interpretation e.g. CBDT circular, judgment etc. Reason 2 Others Description As per section 43B(d)/(e) Exemption 3D whole amount of interest remain unpaid should have been disallowed but in original report interest on FITL and corresponding installment unpaid were reported as disallowed.
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Based on this audit report, the assessee has filed revised return and furnished the revised return manually before the Assessing Officer, because online return was not permitted. The said revised return was filed on 01.09.2016. Ld. Assessing Officer in the assessment order based on such revision of audit report and the revised return held that the return filed by the assessee was not proper and has not correctly shown the particulars of income, because in the original return assessee has not offered the income of Rs.42,10,28,576/- for taxation and the revised return is not valid. The audit report has been revised only after notice u/s. 143(2). Based on this, he has made the disallowance u/s. 43B(e) of Rs.42,10,28,576 and accordingly, the assessed loss was reduced to Rs.11,86,66498/-.
Now on such disallowances, penalty has been levied by the Assessing Officer on the ground that, firstly, return has not been revised in time allowed u/s.139(5) and; secondly, the assessee has made a wrong claim of expenses of Rs.42,10,28,576/- in the original return of income. Hence, assessee had furnished inaccurate particulars of income.
After considering assessee’s explanation and relying upon various decisions, he has finally levied the penalty of Rs.14,31,07,613/- being 100% of the amount of tax sought to be evaded.
Ld. CIT (Appeals) too has confirmed the said penalty holding that assessee has revised the audit report and the
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return after receipt of notices u/s. 143(2) and 142(1). He further held that the reasoning and explanation given by the assessee for reducing the computation of income in the course of assessment proceedings on the basis of observation of the tax audit report is not convincing. The fact of funded interest term loan was well within the knowledge of the assessee company and the financial institution/bank through re-structured debt loan and offered term loan to the assessee to take care of unpaid interest. Such debt restructuring was accepted by the assessee to enable to take care of unpaid interest through term loan on condition of payment of FITL. Thus, assessee-company was well aware of the fact of the actual status of interest payment to the banks, and therefore, it cannot deny the obligation to make disallowance of Rs.48,18,93,419/- u/s.43B(e) of the Act. He has also rejected the assessee’s explanation that there was a bona fide mistake. Accordingly, he has confirmed the action of the Assessing Officer.
Before us, ld. counsel for the assessee after narrating the entire facts and background of the case submitted that before revising of the audit report and filing of the return of income, no specific query or issue of 43B or quantum of disallowance was raised by the Assessing Officer in any of the notices u/s. 143(2) or u/s. 142(1). He drew our attention, first of all, to notice dated 28.08.2015 issued u/s. 143(2) wherein it was in a printed form with no specific issue or query raised. Thereafter, in the notices dated 06.04.2016 and 28.08.2016
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again there was no query with regard to the claim of Section 43B. Thus, he pointed out that only following issues were raised in notice u/s. 142(1) dated 06.04.2016, which reads as under: “1. Copy of Income Tax Return for Assessment Year 2014-15 along with computation of income. 2. Power of Attorney in favour of authorized representative, if any. 3. Proofs regarding payment of taxes. 4. Copy of audit report in Form 3CD and as per Companies Act, 2013 along with all the annexures, if any. TDS certificate, if any.” 5.
Similarly, a notice dated 02.08.2016 which was a general query in a printed form wherein clause (b) and (c) has been ticked which read as under: (b) ** produce of cause to be produced before ma at my office …….. on the accounts and/or documents specified below/overleaf. (c) ** furnish in writing and verified in the prescribed manner the following information (i) copy of ITR for Assessment Year 2014-15, (ii) copy of Audit Report alongwith all the annexures, (iii) proof regarding payment of taxes, (iv) TDS Certificate, if any and (v) power of attorney in favour of authorized representative. The information called for should be furnished to my office at Room No.361, 3rd Floor, ARA Centre, E-2, Jhandewalan Extn., New Delhi by 09.08.2016 at 11.30 AM. This is also an intimation for the change of incumbent.”
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Thus, from a bare perusal of the aforesaid notices, it can be seen that at no point of time, the Assessing Officer has raised any query with regard to claim of disallowance u/s.43B. He further drew our attention to the guidance note for revising the tax audit report and pointed out that auditors have given the explanation on disallowance of interest. He pointed out that there was a bona fide belief at the time of original tax audit report that, once the account of the assessee was restructured under CDR under which the interest on existing loan was to be provided by FITL, then the interest of FITL was only remain payable and the interest of the earlier loan was to be paid by FITL and thus, it was in this background the auditors had clarified that only disallowance u/s.43B for interest payable on FITL was to be disallowed which was Rs.6,08,64,843/-. He submitted that there were certain decisions of Hon'ble Gujarat High Court in the case of Gujarat Cypromet Ltd. which has now been reversed by the Hon'ble Supreme Court in February, 2019, reported in (2019) 262 taxman 93 (SC). Thus, at that time, there were decisions in favour of the assessee with regard to the claim. He further submitted that the Co-ordinate Bench of Hon'ble Delhi ITAT in the case of ITO vs. M.M. Aqua Technologies Ltd. reported in (2005) 143 Taxmann 143 (Del.) (MAG) this issue was decided in favour. Thus, prior to the Hon'ble Supreme Court judgment there were certain decisions precisely on the same issue which were in favour of the assessee. Thus, assessee’s claim in the original return of
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income can be said to be bona fide claim. Later on, the revised disallowance was done suo motu and voluntarily without any specific query raised by the Assessing Officer during the course of the assessment proceedings. Thus, no penalty can be levied on such a revised claim. In support, he also relied upon following judgments:- “1. Price Waterhouse Coopers (P) Ltd. vs. CIT, reported in (2012) 348 ITR 306 (SC). 2. CIT vs. Reliance Petroproducts P. Ltd. reported in (2010) 322 ITR 158 (SC). 3. CIT vs. Compro Technologies P. Ltd. reported in (2015) 232 Taxman 392 (Delhi). 4. PCIT vs. Control & Switchgear contractors Ltd. reported in (2015) 377 ITR 215 (Delhi). ALP Overseas Pvt. Ltd. vs. DCIT. (ITAT) (DEL)” 5.
On the other hand, ld. CIT-DR pointed out that here in this case the assessee had filed a return of income on 28.11.2014 and the revision of the audit report was carried out on 26.08.2016. Thus, there was a huge gap between the original return of income and revised audit report and the revised return of income was filed only on 01.05.2016. Such revised return of income was beyond the time limit of Section 139(5). The assessee’s case was selected for scrutiny much earlier. As per the law, assessee needs to substantiate its claim in the return of income and if any such claim has been revised after the scrutiny proceedings have been initiated, then it cannot be termed as voluntary. Even at the time of
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restructuring of loan the management was involved, and therefore, it cannot be held that assessee was not aware and has simply relied upon the auditor’s note and opinion given in the original audit report. Thus, this fact was in the knowledge of the assessee and assessee cannot take the shelter that it has acted upon the end of the auditors. In the written submission, she has strongly relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. Mak Data Pvt. Ltd., 358 ITR 593 wherein the Hon'ble Supreme Court has held as under: “The Assessing Officer, shall not be carried away by the plea of the assessee like 'voluntary disclosure', 'buy peace', 'avoid litigation', 'amicable settlement', etc. to explain away its conduct. • The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer, between reported and assessed income. • The burden is then on the assessee to show otherwise, by cogent and reliable evidence. • When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the revenue to show that the amount in question constituted the income and not otherwise. [Para 7] • Assessee has only stated that he had surrendered the additional sum with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. • Statute does not recognize those types of defence under the Explanation 1 to section 271(1)(c). It is trite law that the voluntary
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disclosure does not release the assessee from the mischief of penal proceedings under section 271(1)(c). The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty. [Para 7] • The surrender of income on this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the Assessing Officer in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. ■ The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. • Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. • The Assessing Officer, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under section 271, read with section 274. [Para 9] ■ The Assessing Officer has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the Assessing Officer is not required to record his satisfaction in a particular manner or reduce it into writing. [Para 10] • In view of above, impugned penalty order passed by the High Court deserved to be confirmed.”
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She has further relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication Pvt. Ltd. reported in (2010) 327 ITR 510 (Del) and also the decision in the case of Jivanlal and Sons vs. ACIT reported in (2019) 103 taxmann.com 208 (SC) given by the Hon'ble Supreme Court dismissing the SLP of the assessee wherein the Hon'ble High Court has confirmed the penalty on the assessee’s explanation that it has claimed deduction in respect of tax paid on the basis of wrong advice given by the Chartered Accountant. Lastly, she relied upon the decision of Hon'ble Allahabad High Court in the case of Hamirpur District Co-operative Bank Ltd. vs. CIT wherein the Hon'ble High Court has held that where Assessing Officer having noticed that assessee, a co-operative bank, had debited amount of advance tax paid under head other expenditure and it had also debited a certain amount in profit and loss account as loss from sale of or dealing with non–banking business even though it was not an expense but an appropriation of profit disallowed said amounts and included same in income of assessee and also imposed penalty upon it under section 271(1)(c), penalty was rightly imposed. Thus, the penalty levied by the Assessing Officer should be confirmed.
We have heard the rival submissions, perused the relevant findings given in the impugned orders as well as material referred to before us. From the facts as discussed above, it can be seen that assessee had to pay huge interest
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on various loan and credit facilities taken from the financial institutions and banks on the loan taken for setting up of business and operation of business. Due to heavy losses from unfortunate natural calamity assessee was unable to carry out its operation and consequently it had incurred huge losses over the years. Since, assessee was not in a position to pay the installments of loan and interest, therefore, it had applied for restructuring of loan under corporate debt restructure scheme under which the interest on existing loan was to be funded trough interest term loan (FITL). In the original audit report, the auditors have taken a view that only the interest on FITL which remain payable at the end of year will alone qualify for disallowance u/s.43B and accordingly, auditors have qualified amount of Rs.6,08,64,843/- for the disallowance which was the interest payable on FITL sanctioned by the bank. Later on, the auditors have revised the audit report where they have opined that in place of disallowance of Rs.6,08,64,813/-, entire interest payable on earlier loan amounting to Rs.48,18,93,419/- should be disallowed u/s.43B. The reason for revising the original loan has already been incorporated above. In the light of such revised tax audit report, assessee had revised the return of income on 29.08.2016 which was filed manually before the Assessing Officer on 01.09.2016. From the perusal of notices issued prior to the revising of the tax audit report, it is seen that nowhere the Assessing Officer has raised any query with regard to the disallowance u/s.43B or the wrong claim made
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by the assessee which is evident from the contents of the questionnaire and queries raised by the Assessing Officer as incorporated above. Thus, prior to the offering of revised disallowance u/s.43B, Assessing Officer has not confronted this issue at all to the assessee. Only vide notice dated 21.11.2016, which was after the revised tax audit report Assessing Officer has raised this query in notice u/s. 142(1). The relevant points in this regard were as under: “25. Please provide detail of statutory payments covered by 43B and state if such payments have been made before the due date for filing of return, pleas furnish proof of the same, if not already filed with the return. 28. Furnish the auditor’s report with comments/qualification of the auditors for the audit dated 26.08.2016. 29. Explain the circumstances and the facts of revising the audit report on 26.08.2016 alongwith supporting evidences to justify the reasonability for doing so. 30. The facts of revision in the audit report itself prove that the audit of the company made by the auditors on 29.11.2014 was not proper and not valid. Hence, the same cannot be treated as valid audit as per the provisions of law. Thus, there is failure on the part of your company to get the accounts of the company within the specified date in a proper manner u/s.44AB of the Income Tax Act, 1961. Therefore, you are required to explain why proceedings may not be initiated as per provisions of section 271B of the Act for imposition of penalty.” 13. From the content of the above questionnaires raised, it transpires that it was only when the assessee had revised the tax audit report offering higher disallowance u/s.43B the
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Assessing Officer has raised the query. Thus, it cannot be held that revising of the tax audit report and offering of higher amount of disallowance u/s.43B was not voluntarily or the same was offered when assessee was cornered by the Assessing Officer at any point of time. Moreover, prior to the judgment of Hon'ble Supreme Court in the case of CIT vs. Gujarat Cypromet Ltd. vide judgment and order dated 21st Feb, 2019, there were many judgments of the Hon'ble High Courts taking different views. This controversy was set at rest only by the Hon'ble Apex Court in February, 2019. Though in the wake of judgment of Hon'ble Supreme Court, the law has to be interpreted retrospectively, however, if there were certain judicial precedence in favour of the assessee at the time of filing original return of income, then it cannot be said that assessee was not under a bona fide believe while making any claim or offering any disallowance. Thus, under these facts and circumstances of the case, it cannot be held that assessee’s offer for higher disallowance u/s.43B is not voluntary.
Coming to the judgment of Hon'ble Supreme Court in the case of CIT vs. Mak Data Pvt. Ltd. (supra) as relied upon by the Ld. DR, it is seen that, in that case surrender of income was not found to be voluntarily because offer of surrender was made in view of detection made by the Assessing Officer in the course of search conducted in the case of sister concern and it was when assessee was cornered assessee had came forward to surrender of income. Similarly,
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in the case of Hamirpur District Co-operative Pvt. Ltd. also there was a clear cut finding of fact that Assessing Officer during the course of assessment proceedings has specifically noticed that the assessee has claimed the tax credit in respect of advance tax which has been included in the expenses of the assessee. It was only when assessee was confronted with the Assessing Officer it had pleaded the ignorance of the provision of the law which was rejected. Thus, ratio and principle laid down in these cases cannot be held to be applicable in the facts of the present case. Thus, penalty levied by the Assessing Officer and confirmed by the ld. CI T(A) is directed to be deleted. 14. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 24th May, 2019.
Sd/- Sd/- [L.P. SAHU] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24th May, 2019 PKK: