INDIGO JEWELLERY (INDIA) MFG. P.LTD,MUMBAI vs. ITO 8(2)(1), MUMBAI

In this appeal, the solitary grievance of the assessee is against the action of the income-tax authorities in imposing penalty of Rs.4,23,449/- under section 271(1)(c) of the Act .

In this context, the brief facts are that the appellant is a company incorporated under the provisions of the Companies Act,1956 and is, inter-alia, engaged in the business of manufacture of diamond/gold jewellery. For the assessment year under consideration, it filed a return of income declaring a loss of Rs.23,92,146/-, which was subject to scrutiny assessment under section 143(3) of the Act dated 24/11/2011, whereby the loss was assessed at Rs.10,06,419/-. The difference between the reported and the assessed loss was on account of disallowance of Rs.13,70,387/-, representing exchange rate difference on repayment of Term loan capitalized to the cost of assets. Subsequently, the Assessing Officer held the assessee guilty under section 271(1)(c) of the Act on the aforesaid disallowance on the ground that it represented concealment or furnishing of inaccurate particulars of income within the meaning section 271(1)(c) of the Act. Accordingly, a penalty of Rs.4,23,449/- being 100% of tax sought to be evaded on such income was imposed under section 271(1)(c) of the Act, which has since been affirmed by the CIT(Appeals) also. As a consequence, the assessee is in further appeal before us.

Before us, the Ld. Representative for the assessee vehemently pointed out that the aforesaid was a bonafide error on the part of the assessee while filing the return of income. Explaining the background, Ld. Representative for the assessee pointed out that during the year under consideration, assessee company had converted its liability in foreign currency loan applying the year-end exchange rate of Rs.1,63,12,047/- and it had incurred exchange rate difference on repayment of foreign currency loan amounting to Rs.13,70,387/- cumulatively amounting to Rs. 1,76,82,434/-. The entire amount was charged to Profit & Loss Account, following Accounting Standard-11 notified under the Companies(Accounting Standard) Rules 2006. However, while computing total income for the income tax purposes, the assessee company disallowed a sum of Rs.1,62,12,047/-, but inadvertently failed to disallow a sum of Rs.13,70,387/- being the exchange rate difference on repayment of foreign currency Term loan. Ld. Representative for the assessee pointed out that there was no malafide on the part of the assessee in making such a claim inasmuch as assessee is not benefitted at all from such claim as the net income was a figure of loss. Moreover, the loss has been carried forward and set- off against profits in the subsequent year and only on the balance of such profits assessee had claimed deduction under section 10AA of the Act in the subsequent year. It was, therefore, contended that it was a mere inadvertent mistake and such an error does not give rise to penalty under section 271(1)(c) of the Act. In support, reliance has been placed on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Bennett Coleman & Co. Ltd.,33 taxman.com 277(Bom).

On the otherhand, Ld. Departmental Representative has pointed out that an undisputed error had been made in the return of income, which increased the loss to Rs.23,19,146/-, as against the correct loss of Rs.10,06,419/- and thus, the aforesaid disallowance justified the levy of penalty under section 271(1)(c) of the Act.

We have carefully considered the rival submissions. Ostensibly, in all cases where there is a difference between the reported and the assessed income, penalty under section 271(1)(c) of the Act cannot be justified. In other words, merely because there is a difference between the reported and the assessed income, it would not justify imposition of penalty under section 271(1)(c) of the Act. So far as the present controversy is concerned, it relates to an inadvertent error on the part of the assessee in not adding back a sum of Rs.13,70,387/- representing exchange rate difference on repayment of Term loan capitalized to the cost of assets in terms of section 43A of the Act but the same was not added back to the total income, as it was already debited in the Profit & Loss Account. The circumstances explained by the assessee, which have not been doubted by the Revenue, clearly establish that it is a case of an inadvertent mistake and not a deliberate attempt to conceal the income or furnish inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. The judgment of the Hon’ble Bombay High Court in the case of Bennett Coleman & Co. Ltd.(supra)clearly supports the stand of the appellant that an inadvertent mistake on the part of the assessee while filing the return of income cannot be construed as liable for penalty under section 271(1)(c) of the Act. In view of the aforesaid discussion, we hereby set-aside the order of the CIT(Appeals) and direct the Assessing Officer to delete the penalty of Rs. 4,23,449/- imposed under section 271(1)(c) of the Act.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 29th April , 2016.