CAPRI GLOBAL CAPITAL LTD,MUMBAI vs. ACIT 1(1)(1), MUMBAI

This is an appeal filed by the assessee. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-2, Mumbai [in short ‘CIT(A)’] and arises out of levied penalty u/s 271(1)(c) of the Income Tax Act 1961, (the ‘Act’).

The grounds of appeal

Briefly stated, the facts are that the assessee-company filed its return of income for the assessment year (AY) 2010-11 on 14.10.2010 declaring total income at Rs.169,03,44,304/-. The Assessing Officer (AO) completed the assessment u/s 143(3) vide order dated 15.03.2013 determining the taxable income at Rs.169,42,25,265/-. Thereafter, the assessment was revised by way of order u/s 263 r.w.s. 143(3) dated 29.02.2016, by making disallowance of loss on sale of fixed assets debited to the P&L account for the year ended 31.03.2010 for Rs.21,18,081/-. Subsequently, the AO vide order dated 25.08.2016 levied a penalty of Rs.7,19,936/- u/s 271(1)(c) on the ground that the assessee had debited loss on sale of fixed assets amounting to Rs.21,18,081/-, whereas in the computation of income it had not added back the said loss and it was a fit case to impose penalty. 4. In appeal, the CIT(A) observed that the assessee has done the following mistakes: (i) claim of Rs.21,18,081/- pertains to capital expenditure which was wrongly claimed in the P&L account as revenue expenditure, (ii) the AR of the appellant relying more on 44AB report that the Auditor has not pointed the non-deduction and further the AO has allowed in the original assessment order and therefore, it is not a concealed income, (iii) after show cause notice u/s 263 was issued, the appellant has not come forward voluntarily to withdraw the above wrong claim.

Before us, the Ld. counsel of the assessee submits that during the year under consideration the appellant had debited Rs.21,18,081/- as loss on sale of fixed assets. All the details regarding the above loss on sale of fixed assets were duly disclosed in the annual audited accounts. It is stated that the assessee had inadvertently not disallowed the same in the return of income filed for the year. Further, in the tax audit report u/s 44AB of the Act, the tax auditors had also not made any remarks about the disallowance of claim of loss on sale of fixed assets, at relevant clauses, in the audit report furnished in Form 3CD for the year and accordingly the assessee was under a bona fide belief that the same was allowable. Even during the original assessment, the same had been allowed by the AO. It is stated that during the course of proceedings u/s 263 of the Act, the assessee had suo motu accepted the same was a bona fide and inadvertent mistake and withdrew the said claim during the assessment proceedings. Accordingly, the assessee withdrew its claim in respect of the loss on sale of fixed asset to the extent of Rs.21,81,018/-. The Ld. counsel thus submits that no penalty u/s 271(1)(c) is leviable in the instant case as it was an inadvertent and bona fide mistake. Further, the Ld. counsel relies on the decision in Paswara Petrochem Ltd. v. CIT (2019) 101 taxmann.com 487 (All), ITO v. Prabodhan Prakashan (ITA No. 3831/Mum/2015 for AY 2007-08 & for AY 2008-09).

On the other hand, the Ld. DR submits that in the present case after show cause notice u/s 263 was issued, the assessee has not come M/s Capri Global Capital Rs.21,18,081/-. Thus the Ld. DR supports the order passed by the CIT(A).

We have heard the rival submission and perused the relevant materials on record. We find that all the details regarding loss on sale of fixed assets of Rs.21,18,081/- were duly disclosed in the annual audited accounts and the return of income of the assessee. In the case of Paswara Petrochem Ltd. (supra), the AO noted that the assessee had inter alia debited an amount of Rs.84,78,057/- in the P&L account as business loss incurred on account of sale of assets. The AO treated this loss as capital loss and added back this amount to the total income. Thereafter, he levied a penalty u/s 271(1)(c) of the Act. The Tribunal confirmed the order passed by the AO. In further appeal, the Hon’ble Allahabad High Court held that “where assessee disclosed all material facts particulars relating to loss incurred on sale of assets, mere fact that assessee was under a wrong belief that it was a business loss, whereas the AO treated the same as capital loss, it would not constitute a sufficient reason to impose penalty u/s 271(1)(c)”. Facts being identical, we follow the above decision of the Hon’ble Allahabad High Court and delete the penalty of Rs.7,19,936/- levied by the AO u/s 271(1)(c) of the Act.