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order of ld. Commissioner of Income-tax (Appeals)-28, Mumbai [hereinafter referred as ld. CIT(A)] dated 29.09.2016 and 03/10/2016 for AY 2010-11 and 2011-12 respectfully. The assessee has raised certain common grounds of appeal
. Therefore, both the appeals were clubbed, heard and are decided by consolidated order for the sake of convenience and brevity. For appreciation of facts in appeal for AY 2010-11 was treated as lead case.
2. The assessee has in appeal for AY 2010-11 raised following grounds of appeal.
1. In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in levying penalty us 271 (1)(c) amounting to Rs. 81,21,478/-
2. The Ld. CIT(A) erred in appreciating the fact that 43B is a deeming provision and therefore levying penalty based on the same is legally not justifiable. 1 & 313/Mum/2017-Venus Exports
The Ld. CIT(A) erred in law and on facts in not appreciating the facts that there were no inappropriate facts furnished in audit report. The audit report was signed much before the due date and provisions of section 43B allows the time till due date of filing of return for the payment of the statutory dues.
4. The Ld. CIT(A) erred in confirming penalty on deemed disallowance u/s 43B. 5. The Ld. CIT(A) erred in not following the decisions of jurisdictional Benches of ITAT and jurisdictional High Courts and Supreme Court on the issue before confirming the penalty order. 6. The Ld. CIT(A) erred in relying on several non-applicable legal decisions mentioned in the order. 7. The appellant craves to add, alter, amend, and delete any of the above Grounds of appeal
either in full or in part on or before the final hearing of the appeal.
3. Brief facts of the case are that the assessee has engaged in the business of diamond trading and export. The assessee filed its return of income on 30/09/2010 declaring loss of Rs.6,32,14,940/-. The return of income was selected for scrutiny. During the assessment proceeding, the AO noted that the assessee has claimed a deduction of Rs. 2,62,83,103/- as Bank interest payable in profit and loss account. The AO issued show cause notice as to why the expenses should not be disallowed. The assessee filed its reply vide letter dated 06/01/2013. In the reply the assessee contended that the amount of Rs. 2,62,83,103/- debited to P&L account as interest payable, it was further contended that interest was payable on over due bills. The interest was payable for the export bills discounted from the bank against export done but realization not received on due dates from exports. The contention of assessee was not accepted by the AO holding that the assessee has not paid interest in the previous year to the bank and accordingly the interest was not allowable to them. The AO concluded that as per section 43B the deductions shall be allowed in the previous year in 2 & 313/Mum/2017-Venus Exports which the specified sum is actually paid, irrespective of the previous year in which the liability to pay such sum was incurred according to the method accounting adopted by the assessee. The AO therefore also disallowed the provision u/s 43B and added back to the total income of the assessee and initiated penalty u/s 271(1)(c). No appeal was filed against the quantum assessment. The AO levied the penalty @100% of tax were levied. The AO worked out the penalty of Rs. 81,21,478/- vide order dated 24/09/2013. On appeal before us the Ld. CIT(A) the actions of AO was confirmed. Thus further aggrieved by the order of Ld CIT(A), the assessee has filed present appeal before us.
We have heard the submissions of Ld. AR of the assessee and Ld. DR for revenue and perused the material available on record, we have also deliberated on various case laws relied by the lower authorities. The Ld. AR of the assessee submits that during the assessment the AO disallowed bank interest as in the Tax Audit Report (TAR), outstanding delayed payment charges were not reported by the Auditor. The Auditor has given note that information given under 21 (B) is only upto day of signing of report. Due to lack of legal knowledge, since the sum was not reported in the TAR, it was overlooked while filing return of income. During the assessment, the Assessing Officer was duly informed that interest was payable to Syndicate Bank for over dues bills and copy of statement was also filed. The disallowance was accepted as it was a bonafide mistake and no further appeal was filed. The tax audit report was prepared much before filing of return of income. The Ld. AR submits that assessee 3 & 313/Mum/2017-Venus Exports has not evaded any tax. The assessee has shown ‘Nil’ income while filing of return income as the assessee has suffered huge losses. Despite disallowance no tax was payable by the assesee. The assesse has suffered huge losses which have also expired in AY 2018-19 therefore it cannot be said that the assessee evaded the tax. The Ld. AR however submitted that the assessee has filed affidavit of one of the partner of the firm namely Shri Goutham Jaichand Vora. In the affidavit the partner has specifically contended that disallowed payment charges for AY 2010-11 and 2011-12 of Rs. 2,62,83,102/- and Rs.5,38,52,522/- which remain unpaid. As per normal accounting practice the same were debited in P&L account as bank interest payable. For AY 2010-11 and 2011-12 the tax audit report was completed on 03/08/2010 and 05/09/2011 respectably. However, the return of income was filed u/s 139(1) on 30/09/2010 and 30/09/2011 respectively that is approximately two months after preparation of tax audit report.
In the affidavit it is further contended that the assessee firm suffered huge losses during AY 2010-11 and 2011-12 and even after disallowances of bank interest payment. The finally return income remained as loss and the bank has classified firm’s loan as Non Performing Asset (NPA) on 15/10/2010. It is further contended in the affidavit that all carry forward loss for AY 2010-11 has expired in AY 2018-2019 and for AY 2010-11 will expire in current year as there is no business. Therefore, there is no revenue loss.
The Ld. AR further contended that the case laws relied by lower authorities are not applicable on the facts of the 4 & 313/Mum/2017-Venus Exports present case. In A.M shah & Company vs CIT 108 Taxman 137 (Guj), the assessee manipulated the stock. In DCIT vs Champalal K. Vardhan [2011] 128 ITD 309 (Mum), the assessee wrongly claimed deduction u/s 54. In CIT vs Zoom Communication (P.) Ltd. [2010] 191 Taxman 179 [Del] the assessee claimed income tax paid which was not paid.
In the support of her submission the Ld. AR relied upon the decision of Pune Tribunal in Patson Auto Products Pvt. Ltd. vs ACIT in dated 13/11/2010. Rabo India Finance Ltd. Vs. ACIT in Mumbai Tribunal in ITA No. 3356/Mum/2009 dated 29/07/2010, (2011) 048 SOT 0052. The Ld. AR submits that the facts of present case are identical to the facts in Patson Auto Products Pvt. Ltd. (supra).
8. On the other hand the Ld. DR for the assessee submitted that the interest of Rs. 2,62,83,103/- was not payable during the year. The assessing officer disallowed the interest in the assessment order. No further appeal was filed by the assessee against such disallowance. The Ld. CIT(A) while confirming the penalty concluded that it is a fit case for confirming the penalty. The Ld. DR for revenue prayed for the dismissal of the appeal of the assessee.
We have considered the rival submissions of the ld. representative of the parties and perused the material available on record. We have also deliberated on various case law relied by lower authorities. During the assessment, the Assessing Officer disallowed the deduction of Rs. 2.62 Crore as bank interest payable. Before disallowing the payable interest, the Assessing Officer issued show-cause notice to 5 ITA No. 312 & 313/Mum/2017-Venus Exports the assessee. In reply to the show-cause notice, the assessee contended that interest was payable to Syndicate Bank for over dues bills and copy of statement was enclosed. The said interest was payable for export bills discounted from Bank against export done but realization not received on due dates from the exports. The reply of assessee was not accepted by Assessing Officer holding that assessee has not paid interest in the previous year to the Bank payable by them. The Assessing Officer concluded that the interest can only be allowable when the same is actually paid and not merely because the same is due as per method of accounting adopted by assessee. No actual payment was made, thus, the deduction cannot be allowed under the provisions of section 43B. The Assessing Officer issued show-cause notice under section 274 dated 28.03.2013. No reply was received from assessee. Further reminder notice dated 30.07.2013 was again issued by Assessing Officer. The Assessing Officer noted that despite service of notice, no reply was furnished by assessee. However, the Assessing Officer in para-6 of penalty order noted that the explanation of assessee is far from reasonable as far as non-inclusion of outstanding interest of Rs. 2,62,83,103/- in the computation of income is concerned. The Assessing Officer further observed that assessee is assisted by qualified tax professionals and should have made addition of this amount in the computation. Had the case got escaped from scrutiny, the amount would have escaped from assessment. The Assessing Officer levied the penalty @ 100% of tax sought to be evaded. & 313/Mum/2017-Venus Exports
We have noted that the Assessing Officer on one hand had noted that no explanation/reply was furnished by assessee, on the other hand, the Assessing Officer recorded that the explanation of assessee is far from reasonable for non- inclusion of outstanding interest in the computation of income. We have further noted that stand of assessee throughout the proceedings i.e. assessment, penalty proceeding and before the ld. CIT(A) that there was no evasion of tax. The delayed payment charges were not reported by the Auditor in tax audit report, it was overlooked while filing return of income. The narration in para-6 of penalty order that the explanation of assessee is far from reasonable as far as non-inclusion of outstanding interest in computation of income is concerned, is clearly shows that the assessee took the similar stand during the assessment as well as in penalty proceeding.
The co-ordinate bench of Pune Tribunal in Patson Auto Products Pvt. Ltd. vs. ACIT (supra) while deciding the appeal against the penalty levied on similar disallowances passed the following order:
“6. We have carefully considered the rival submissions. Section 271(1)(c) of the Act, empowers the Assessing Officer to impose penalty if he is satisfied that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income. It is a trite law that in order to justify imposition of penalty, either of the two ingredients is required to be fulfilled. The Assessing Officer has to establish either that the assessee has concealed its income or the assessee has furnished inaccurate particulars of such income. It is a well settled proposition that making of a claim, which is unsustainable in law, by itself, would not result in levy of penalty u/s 271(1)(c) of the Act for concealment or furnishing of inaccurate particulars of income. & 313/Mum/2017-Venus Exports
7. Factually speaking, in the present case, the disallowance of Rs. 36,41,047/-, made in terms of section 43B(e) of the Act, has resulted in the levy of penalty U/S 271(1)(c) of the Act. Section 43B(e) of the Act prescribes that no deduction on account of any sum payable by the assessee as interest on a term loan from a scheduled bank shall be allowed unless the same is actually paid by him. The aforesaid amount of interest was outstanding for payment to a scheduled bank and, therefore, the same was disallowed in the assessment. Ostensibly, the assessee erred in not applying the provisions of section 43B(e) of the Act and making the disallowance in the return of income. On the merits of the addition, there is no dispute inasmuch as the appellant has fairly conceded that the same comes within the purview of section 43B(e) of the Act. The circumstances in which the said amount remained to be added back in the return of income has been explained by the assessee before the lower authorities as well as before us. The claim of the assessee is that the same was not reflected in report of the auditor issued u/s 44AB of the Act inspite of a specific requirement thereof. The appellant has also explained that its directors are technical persons, not well versed with the legal provisions. Quite clearly, the assessee filed a return of income showing a loss and even after the aforesaid disallowance, the finally assessed income remains a loss. We may hasten to add here that we are not saying that in every case of loss return no penalty is leviable or that a mistake of the professional would always negate the penalty leviable u/s 271(1)(c) of the Act. We are only trying to gauge whether after considering the totality of circumstances, could it be said that the explanation of the assessee is bonafide or not. In our considered opinion, without going into the merits or otherwise of the aforesaid pleas, it would be sufficient to observe that insofar the bonafides of the assessee's claim in the return of income is concerned, the same is well-founded, especially, considering that an addition made u/s 43B of the Act is a case of mere disallowance resulting from an application of a provision of law and would not tantamount to concealment or furnishing of inaccurate particulars of income, within the meaning of section 271(1)(c) of the Act in the present case. In the aforesaid proposition, we are supported by the judgment of the Hon'ble Madras High Court in the case of CIT Vs. MSK Construction (P.) Ltd., 296 ITR 18(Mad.), wherein it has been observed that a disallowance made u/s 43B of the Act does not amount to concealment within the meaning of section 271(1)(c) of the Act.
In the background of the aforesaid discussion, we are inclined to uphold the ultimate prayer of the assessee that penalty u/s 271(1)(c) of the Act, is not merited in the present case. Accordingly, the order of the CIT(A) is set aside and the Assessing Officer is directed to delete the penalty imposed u/s 271(1)(c) of the Act amounting to Rs. 13,06,365/-.” & 313/Mum/2017-Venus Exports
Further, the co-ordinate bench of Mumbai Tribunal in Rabo India Finance Ltd. vs. ACIT (supra) held that the applicability of provision of section 43B(e) was neither considered by Auditor nor by the Assessing Officer in the original assessment, re-assessment the omission by the assessee to not considered the provision of section 43B(e) has to be considered as bonafide as it would not amount to concealment and hence, no penalty under section 271(1)© be levied in relation to the additions made by Assessing Officer on account of disallowance of interest. The explanation of assessee for not making disallowance of interest has to be considered as a bonafide. Penalty cannot be levied only on the ground that assessee not filed dispute the addition in appeal.
We have further noted that the assessee has suffered loss and assessee has shown Nil income by showing loss of Rs. 6.32 Crore. Thus, there was no tax evasion by disallowance of provision of interest. The partner of assessee has also filed affidavit that there was no malafide intention for evading tax and no tax was evaded at all. The right of set off of carry forward losses for A.Y. 2010-11 will expired in A.Y. 2018-19 and for A.Y. 2011-12 will get expired in the current year. There is no business of assessee. In our view, the assessee has shown a reasonable cause as prescribed under section 273B, for not levying the penalty under section 271(1)(c). Considering the above factual and legal discussion, the order of Assessing Officer in levying penalty, which was confirmed by ld CIT(A) Officer is set-aside and the Assessing Officer is & 313/Mum/2017-Venus Exports directed to delete the entire penalty. In the result, the grounds of appeal
raised by assessee are allowed. 14. In the result, appeal of the assessee is allowed. ITA.No. 313/Mum/2017 for A.Y. 2011-12
The facts of this appeal for this year are identical; the assessee has raised identical grounds of appeal
. Considering the fact that we have already allowed the appeal for A.Y. 2010-11 on identical grounds of appeal, therefore following the principles of consistency, the appeal for AY 2011-12 is also allowed with similar observation.
16. In the result, appeal for AY 2011-12 is allowed. Order pronounced in the open court on 12/04/2019.