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Income Tax Appellate Tribunal, ‘ B’ BENCH : CHENNAI
Before: SHRI ABRAHAM P.GEORGE & SHRI GEORGE MATHAN
आदेश / O R D E R
PER BENCH:
These are appeal and cross objection of the Revenue and assessee respectively directed against an order dated 03.10.2016 of ld. Commissioner of Income Tax (Appeals)-1, Chennai. Revenue is ITA No. 38/17 & CO33/17 :- 2 -: aggrieved that the ld. Commissioner of Income Tax (Appeals) deleted penalty of �50,28,975/- levied u/s.271(1) (c) of the Income Tax Act, 1961 (in short ‘’the Act’’).
Facts apropos are that assessee engaged in the business of manufacturing, exporting, trading and dealing in garments had filed its return of income for the impugned assessment year declaring loss income of �14,95,34,377/-. Assessment was thereafter completed u/s.143(2) of the Act after scrutiny making the following disallowance/additions:-
(i) Disallowance u/s.14A 63,00,143 (ii) Disallowance u/s.40(a)(i) 2,98,830 (iii) Disallowance u/s.40(a)(ia) 12,26,598
(iv) Non-payment of interest to 1,55,00,000 Bank Ld. Assessing Officer thereafter issued notice to the assessee as to why penalty should not be levied on the disallowance/additions. Based on the reply given by the assessee, ld. Assessing Officer was of the opinion that no penalty was leviable on the disallowance u/s.14A, Sec 40(a)(i) and Sec. 40(a) (ia) of the Act. However, according to ITA No. 38/17 & CO33/17 :- 3 -: him, assessee was exigible to penalty on interest of �1,55,00,000/- disallowed by him. As per the ld. Assessing Officer, assessee‘s contention that non payment of interest to bank was inadvertently claimed as expenditure, due to a bonafide mistake, could not be accepted. According to him, if it were an inadvertent mistake, assessee would have filed a revised return, once it learned that the claim was not allowable u/s.43B(e) of the Act. As per the ld. Assessing Officer, assessee though it was aware that interest on loans taken from banks could be claimed only on actual payment basis and not on accrual basis, they knowingly ignored this. In the opinion of the ld. Assessing Officer, there was nothing debatable on the issue at all. He held that assessee had furnished inaccurate particulars in so far as the sum of �1,55,00,000/- was concerned. Penalty of �50,28,975/- was levied u/s.271(1) (c) of the Act.
Aggrieved, assessee moved in appeal before the ld. Commissioner of Income Tax (Appeals). Argument of the assessee was that interest which was not paid to the bank was disclosed in the Statutory Audit Report filed alongwith return of income. According to it, there was no furnishing of inaccurate particulars. Further as per the assessee, it had substantial loss available for carry forward and no benefit would have accrued to it by making a claim, not allowable
ITA No. 38/17 & CO33/17 :- 4 -: under the Act. Reliance was placed on the judgment of Hon’ble Apex Court in the case of Price Waterhouse Coopers vs. CIT, 348 ITR 306.
Ld. Commissioner of Income Tax (Appeals) after considering 4. the submissions of the assessee held that Explanation 4(a) of Sec.271(1) (c) of the Act relied on by the ld. Assessing Officer for fastening penalty on the assessee was not at all applicable. As per the ld. Commissioner of Income Tax (Appeals), assessee had offered the sum of �1,55,00,000/- as remission of liability in its return for assessment year 2013-14. According to him, Audit report for relevant previous year also mentioned this sum. Ld. Commissioner of Income Tax (Appeals), came to a conclusion that the claim was made inadvertently. Thus according to him, the judgment of Hon’ble Apex Court in the case of Price Waterhouse Coopers (supra) came to the aid of the assessee. He deleted the levy of penalty.
Now before us, the ld. Departmental Representative strongly 5. assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that assessee was a Company which was subject to Statutory Audit under Companies Act, 1956. According to him, assessee could not say that it was not properly advised. As per the ITA No. 38/17 & CO33/17 :- 5 -: ld. Departmental Representative clause(e) to Sec.43B was clear regarding interest on loans taken from Scheduled Bank. Contention of the ld. Departmental Representative was that such interest could be claimed only on actual payment basis. As per the ld. Departmental Representative, it was not a case of bonafide mistake. According to him, ld.CIT(A) erred in deleting the levy of penalty.
Per contra, ld. Authorised Representative strongly supported the order of the ld.CIT(A).
We have considered the rival contentions and perused the orders of the authorities below. During the course of assessment proceedings, ld. Assessing Officer had put the assessee on notice as to how it could claim interest of �1,55,00,000/- on loans taken from HDFC, when such amount was not actually paid. Reply of the assessee to the query was as under:-
"The company's net worth was eroded as on 3Ft March 2010 under the provisions of Sick Industrial Companies Act (SICA). Accordingly the company filed for reference with the Board for Industrial and. Financial Reconstruction (BIFR) under Section 15(1) of SICA. The reference was considered by BIFR and upon submissions made and material on record, BIFR has declared the Company as Sick Industrial Company U/S 3(1) (0) of SICA vide its order dated 19th April
ITA No. 38/17 & CO33/17 :- 6 -:
2011. BIFR issued directions to the lenders and to the Company to submit a Rehabilitation Scheme as per Section 18 of SICA.
The Term loan obligations and interest Commitments have been met in full with respect to the State Bank of India in accordance with the Terms and Conditions of the Sanction letter. However the Company has defaulted in repayments of Term loans amounting to Rs.0.22 crs and Interest Commitments amounting to RS.1.55 crs with respect to HDFC Bank's Borrowings. The Term loan repayment is pending since February 2012 while the interest commitment remains unpaid since January 2011.
The Company submitted its Draft Rehabilitation Proposal (DRS) to the Operating Agency, State Bank of India and is awaiting the sanction of the Second Re-structuring Package. The cut-off Date for the DRS is 3Ft March 2011 as per the Orders of BIFR and the Company has sought certain reliefs / concessions in Terms loans / interest rates with the lenders.
However, please note that during the year ended 3Ft March 2014, HDFC Bank opted for a One-Time Settlement (OTS) of dues,' accordingly the Company settled the dues of HDFC Bank under OTS and the net gain of Rs.9.97crs upon settlement has been recognized under extra-ordinary income in the Statement of Profit & Loss and the same has been offered for tax. "
Assessee thereafter made a further submission also, and this read as under:-
ITA No. 38/17 & CO33/17 :- 7 -:
"the company has defaulted in payment of a sum of Rs.1.55 crores of interest due to HDFC Bank. The said amount has been debited in the P&L account also. The company has however offered the amount and the tax in the subsequent year u/s 41(1) on the basis of cessation of liability.
The said amount maybe considered for disallowance u/s 43B(e) of the Income Tax Act and the return treated as amended to that extent."
It is clear from the above reply that assessee had offered the sum as income in the subsequent assessment year considering it as a cessation of liability. Interest to the extent of �1,55,00,000/- debited in Profit and Loss found specific mention in the Audit Report and Annual Accounts also. Thus, the omission to make a suo-motu disallowance u/s.43B(e) of the Act was in our opinion inadvertent and not with an intention of understating the income. That apart, assessee having mentioned the amount in its Audit Report and Annual Accounts, we cannot say that the particulars furnished by it were inaccurate. In our opinion, the ld. Commissioner of Income Tax (Appeals) was justified in relying the case of Price Waterhouse Coopers (supra) for deleting the penalty levied on the assessee. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals).
ITA No. 38/17 & CO33/17 :- 8 -:
Ld. Authorised Representative submitted that cross objections filed by the assessee is only for supporting the order of the ld. Commissioner of Income Tax (Appeals).
In the result, appeal of the Revenue stands dismissed, 9. whereas Cross objection of the assessee is dismissed as infructuous.
Order pronounced in the open court at the time of hearing on 6th December, 2017, at Chennai.