TERRA INFRA DEVELOPMENT LIMITED,NAGPUR vs. ACIT CIRCLE-3, NAGPUR

In its appeal, the assessee has raised following grounds:–

The order imposing penalty without giving reasonable opportunity of being heard is in violation of principles of natural justice and is bad in law.

The learned A.O. ought not to have levied penalty in view of application for immunity having been submitted u/s 270AA of I.T. Act 1961 and requisite conditions for grant of immunity being available on record. 6. The learned A.O. erred in levying penalty u/s 270A of I.T. Act 1961 by holding that assessee has under reported income. 7. Levy of penalty u/s 270A of I.T. Act 1961 is unjustified, unwarranted and bad in law

The assessee company, for the year under consideration, filed its return of income declaring total income at ` nil, due to current year loss of ` 93,94,104. The case of the assessee was selected for scrutiny through CASS. Statutory notices were issued by the Assessing Officer which were served on the assessee. The Assessing Officer completed regular assessment on 11/12/2019, determining loss at ` 88,81,922, as against the loss reported in the return of income at ` 93,94,104, by disallowing interest on TDS and depreciation.

The Assessing Officer made addition in respect to disallowance of interest on TDS and depreciation as discussed in the assessment order. The Assessing Officer also initiated penalty proceeding under section 270A of the Act against the disallowance made in the assessment order on account of underreporting of income.

The assessee has not filed appeal challenging the addition made in view of no tax effect. The assessee furnished Form no.68, seeking immunity from penalty under section 270A of the Act in terms of provisions of section 270AA(2) on 07/01/2020 by accepting the disallowance and not filing appeal.

On appeal, the learned CIT(A) in its order vide Para–9, has noted that the amount of depreciation is liable for taxation since the use towards business could not be substantiated by the assessee. The interest on TDS paid by the assessee being penal in nature hence the Assessing Officer was justified in disallowing the same. The learned CIT(A) in its order vide Para–6 at Page–5, has also noted that the Jurisdictional Assessing Officer filed reply dated 14/02/2022, wherein no immunity order was passed.

Before us, the learned Counsel for the assessee submitted that the assessee has not been granted opportunity in terms of proviso to section 270AA(4) of the Act before passing the order for rejection of immunity for imposition of penalty. He submitted that the interest paid for delay in payment of TDS is compensatory in nature and is allowable deduction. In support of this contention, the learned Counsel relied upon the decision of the 4 Terra Infra Development Ltd. Co–ordinate Bench, Kolkata, rendered in Narayani Ispat Pvt. Ltd., ITA no.2127/Kol./2014, vide order dated 30/08/2017, wherein it has been held that interest on delayed payment of TDS is compensatory and not penal in nature and is allowable business expenditure. In the regular assessment framed disallowance of interest paid on TDS and deprecation was made on the basis of information as provided by the assessee in the return and assessment proceedings. It is explained in statement of facts before the learned CIT(A) that addition made is of debatable nature and the assessee was under a bona fide belief. In terms of statutory provisions of section 270A(6), the Assessing Officer ought not to have levied the penalty under section 270A of Act, as matter of disallowance are supported by bona fide explanation. The case of assessee is not underreporting of income in terms of provisions of section 270A(6) of the Act is exigible for imposition of penalty.

Per–contra, the learned Departmental Representative relied on the order of the authorities below and prayed that the concurrent findings of the learned CIT(A) need not be disturbed.

We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. The levy of penalty by the Assessing Officer ignoring the application for immunity which was upheld by the learned CIT(A) has no valid reason and/or justification. The requisite condition for grant of immunity stands satisfied by the assessee and therefore, there was no scope for non–grant of immunity available to the assessee in terms of statutory provisions of section 270AA of the Act and that too without giving opportunity to the assessee. On this count itself the 5 Terra Infra Development Ltd. penalty order passed by the Assessing Officer and confirmed by the learned CIT(A) is liable to be quashed. It is well settled proposition that no penalty under section 270A of the Act is leviable in respect of debatable addition made in the assessment framed particularly when the explanation is bona fide and the assessee has disclosed all material facts to substantiate the explanation offered. Thus, we hold that the order imposing penalty under section 270A at ` 79,132, is unwarranted and is hereby quashed. The grounds raised by the assessee are allowed.

In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on 12/12/2024