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Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
Before: SHRI G.S.PANNU & SHRI AMARJIT SINGH
The captioned appeal filed by the assessee pertaining to A.Y. 2007-08 is directed against an order passed by Ld. CIT(A)-15, Mumbai
(Assessment Year : 2007-08) dated 30/09/2014, which in turn arises out of an order passed by Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 ( in short ‘the Act’) dated 20/03/2013.
In this appeal, the solitary grievance of the assessee is against the action of the income-tax authorities in levying penalty of Rs.5,38,20,422/- under section 271(1)(c) of the Act. In brief, the relevant facts are that the appellant is engaged in the business of software development and rendering technical services outside India in the field of computer software. For the assessment year under consideration, assessee company filed a return of income on 31.10.2007 declaring net taxable income of ‘Nil’ under the normal provisions of the Act. The return of income filed by the assessee was subject to a scrutiny assessment under section 143(3) of the Act dated 05.01.2011 whereby the total income was determined under the normal provisions of the Act at Rs.31,17,15,420/- after allowing set off of brought forward losses/unabsorbed depreciation. Subsequently, the Assessing Officer held the assessee guilty of furnishing inaccurate particulars of income within the meaning of section 271(1)(c) r.w. Explanation (1), (4) and (7) thereof qua the following items of additions made to the returned income: (i) transfer pricing adjustment under section 92CA(4) of the Act – Rs.90,42,380/-; and, (ii) addition under section 28(iv) of the Act – Rs.15,35,03,849/-. In so far as the addition on account of transfer pricing adjustment is concerned, the CIT(A) granted partial relief to the assessee in the quantum proceedings and scaled it down to Rs.63,21,983/-. In this manner, the Assessing Officer levied penalty under section 271(1)(c) of the Act of Rs.5, 38,20,422/-, being 100% of the tax sought to be evaded on the income of (Assessment Year : 2007-08) Rs.15,98,94,302/-, being additions on account of transfer pricing adjustment and section 28(iv) of the Act. The said order of the Assessing Officer was carried in appeal before the CIT (A), who has since affirmed the same. In this background, assessee is in further appeal before us.
Before us, the first and foremost plea raised by the assessee is that there is no justification for levy of penalty on either of the two issues, having regard to the facts and circumstances of the case. In so far as the addition on account of transfer pricing adjustment is concerned it is noticeable that vide order dated 20/04/2016 in & 3012/Mum/2012, the issue has been set aside back to the file of the Assessing Officer for examination afresh in the light of the directions of the Tribunal for the earlier assessment years of 2004-05 to 2006-07 vide order dated 21/08/2013 & 3/12/2014 respectively. As a consequence, the addition on the basis of which penalty has been levied does not survive as the same has been remanded back to the file of the Assessing Officer. Since the basis of penalty itself does not survive, the penalty levied with respect to the addition on account of transfer pricing adjustment is also liable to be set aside. We hold so.
Coming to the addition under section 28(iv) of the Act of Rs.15,35,03,849/-,the same represents waiver of the outstanding principal amount of loan. Notably, during the year under consideration assessee had entered into one time settlement (OTS) with its bank whereby after making a partial repayment of the outstanding balance, the bank waived recovery of Rs.15,35,03,849/- on account of principal amount of loan and Rs.19.26 crores on account of outstanding interest thereof. In the return of income, assessee claimed that the said sum of (Assessment Year : 2007-08) Rs.15,35,03,849/- was capital in nature not chargeable to tax as income. The Assessing Officer, however, held that the same represented cessation of liability towards the bank and therefore it was a benefit taxable within the scope of section 28(iv) of the Act. This difference between the reported and assessed income has been held by the Assessing Officer to be furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. In so far as the finality of such addition in the quantum proceeding is concerned, in terms of the decision of the Tribunal dated 20/04/2016 (supra) the same has been reduced to Rs.1.57 crores and therefore the levy of penalty under section 271(1)(c) of the Act gets reduced to that extent. Be that as it may, the rival parties have been heard on the aspect of levy of penalty under section 271(1)(c) of the Act in relation to such addition. In this regard, the learned Ld. Representative for the assessee contended that complete particulars of the claim were explained in the Notes attached to the computation of income and reference was made to page 15 of the Paper Book in this regard. The learned AR explained that the assessee had contended in the Note that the impugned sum was not in the nature of a trading liability and therefore following the judgement of the Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. vs. CIT, 261 ITR 501(Bom) the impugned sum was not liable to be taxed as income. It was pointed out that the Assessing Officer rejected the claim of the assessee by merely applying a subsequent judgement of the Hon’ble Bombay High Court in the case of Solid Containers Ltd. vs. CIT, 308 ITR 417(Bom) without appreciating that the said judgement was inapplicable to the facts of the case. Be that as it may, the learned AR pointed out that the claim of the assessee
(Assessment Year : 2007-08) made in the return of income was based on a judgement of the Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. (supra) which was available at that point of time and therefore it was a bona fide claim. The judgement of the Hon’ble High Court in the case of Solid Containers Ltd.(supra) is dated 29.08.2008 which is subsequent to the filing of return of income by the assessee on 31.10.2007 and therefore even if the stand of the Assessing Officer is to be upheld in quantum assessment proceedings, the bona fides of assessee’s claim made in the return of income cannot be doubted, as it was based on the then prevailing judgement of the Hon’ble Bombay High Court.
On the other hand, the Ld. Departmental Representative for the Revenue asserted that the addition to the returned income itself raises a presumption of concealment/furnishing inaccurate particulars of income and thus the onus is on the assessee to establish that such presumption is not justified. The levy of penalty under section 271(1)(c) of the Act is sought to defended accordingly.
We have carefully considered the rival submissions. Section 271(1)(c) of the Act permits the Assessing Officer to levy penalty, on being satisfied that assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. In the present case, as is evident from a reading of Para-40 of order of the Assessing Officer levying penalty, the charge made against the assessee is of ‘filing inaccurate particulars of income’ within the meaning of section 271(1)(c) of the Act . The Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd., 322 ITR 158 (SC) has explained the meaning of the expression ‘particulars’ used in section 271(1)(c) of the (Assessment Year : 2007-08) Act. According to the Hon’ble Supreme Court, the word ‘particulars’ in section 271(1)(c) of the Act embraces the details of the claim made in the return of income. Where no information given in the return of income is found to be inaccurate or incorrect, the assessee cannot be held guilty of furnishing inaccurate particulars. The Hon’ble Supreme Court has further explained that making of incorrect claim does not tantamount to furnishing inaccurate particulars of income. The Hon’ble Supreme Court has further emphasized that in order to attract penalty under section 271(1)(c) of the Act, the details supplied in the return “must not be accurate, not exact or correct, not according to the truth or erroneous”. In our considered opinion, the charge made by the Assessing Officer in the present case deserves to be tested in the light of the aforesaid ratio of the judgment of Hon'ble Supreme Court in the case of M/s. Reliance Petroproducts Ltd. (supra), inasmuch as what is sought to be held against the assessee is furnishing of inaccurate particulars of income.
6.1 In the return of income, the assessee company claimed that the waiver of principal amount of loan outstanding is not in the nature of trading liability and, therefore, it was not being offered for taxation. The Note accompanying the return of income also asserted that reliance was being placed on the judgment of the Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. (supra). Ostensibly, the case set up by the assessee was that since the loan funds were used for acquiring the shares in Applisoft Inc., which was a capital asset, the waiver of such loan was to be regarded as capital in nature. The Assessing Officer, however, differed with the assessee and treated the same as a benefit assessable under section 28(iv) of the Act and in (Assessment Year : 2007-08) support relied upon the judgment of Hon’ble Bombay High Court in the case of Solid Containers Ltd.(supra). Be that as it may, for the present we are not on merits of the rival submissions but only on the issue of ascertaining as to whether the claim made by the assessee in the return of income constituted filing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act or not. Quite clearly, in the assessment order and even under the order passed by the Assessing Officer levying penalty under section 271(1)(c) of the Act, there is no discussion which would show that any of the particulars regarding the claim were found to be false or erroneous. A mere making of a claim , which is not found by the Assessing Officer to be in accordance with law, by itself does not constitute furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. The aforesaid proposition is quite well settled and does not require any further elaboration. In the facts and circumstances of the case, apart from asserting that “the assessee has filed inaccurate particulars of income”, the Assessing Officer has not provided any cogent material to justify the same. Therefore, in our considered opinion, the charge made against the assessee of having furnished inaccurate particulars of income qua the claim of waiver of principal amount of loan, is devoid of factual support. Even otherwise, we find that the claim made in the return of income was on bonafide consideration inasmuch as it was based on the judgment of the Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd.(supra). The Hon’ble Bombay High Court has held that waiver of loan would not give rise to benefit under section 28(iv) of the Act in a situation, where the loan proceeds were used for acquiring capital asset. This is the (Assessment Year : 2007-08) precise case, which was being set-up by the assessee in the quantum proceedings, inasmuch as it was canvassed that the loan funds were utilized for acquisition of shares in Applisoft Inc., which was treated as a capital asset. On the contrary, the judgment of the Hon’ble Bombay High Court in the case of Solid Containers Ltd.(supra) relied upon by the Assessing Officer, is applicable in a situation where the waiver relates to a loan which was used for trading activity. Considered in the aforesaid light, in our view, the claim made by the assessee in the return of income cannot be said to be lacking in bonafides or constituting furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. Thus, the penalty levied under section 271(1)(c) of the Act deserves to be deleted. We hold so.
In the result, the appeal of the assessee is allowed, as above.
Order pronounced in the open court on 22nd April , 2016.