Tribunal upholds cancellation of penalty under Section 271(1)(c) based on valid revised return and justifications.

DCIT-10 (1), Mumbai Versus M/s Maharashtra State Power Generation Co. Ltd.

DCIT-10 (1), Mumbai Versus M/s Maharashtra State Power Generation Co. Ltd. - TMI Issues Involved:
1. Cancellation of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the revised return of income filed by the assessee.
3. Justification for the reversal of excess billing as per MERC order.
4. Disallowance of coal cost freight issue-Bhusaval.
5. Provision for difference in oil stock.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty Imposed under Section 271(1)(c):
The primary issue was whether the CIT(A) erred in cancelling the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The revenue argued that the assessee had understated income and furnished inaccurate particulars. However, the CIT(A) found that the assessee had validly revised its return due to the discovery of omissions and wrong statements in the original return, leading to the cancellation of the penalty.

2. Validity of the Revised Return of Income Filed by the Assessee:
The assessee filed a revised return of income, claiming that the original return was based on unaudited accounts. The A.O. declined to accept this revised return, arguing that a return could only be revised under Section 139(5) on discovering any omission or wrong statement in the original return. The CIT(A) disagreed, concluding that the revised return was valid as it corrected omissions and wrong statements in the original return.

3. Justification for the Reversal of Excess Billing as per MERC Order:
The assessee reversed excess billing of Rs. 320.72 crores in its revised return based on an order by the Maharashtra Electricity Regulatory Commission (MERC). The CIT(A) observed that the reversal was in conformity with the MERC order and thus concluded that no inaccurate particulars of income were furnished by the assessee. The Tribunal upheld this view, noting that the issue was debatable and the assessee's explanation was bona fide and reasonable.

4. Disallowance of Coal Cost Freight Issue-Bhusaval:
The A.O. made an addition of Rs. 16,31,85,000/- related to coal cost freight issue-Bhusaval, which the assessee did not contest in its quantum appeal before the Tribunal. The CIT(A) found that the assessee had satisfactorily explained that this expenditure was incurred in the year under consideration and was based on the statutory auditors' report. The Tribunal agreed with the CIT(A), noting that the assessee's claim was bona fide and justified, and that the full disclosure of particulars was made in the revised return of income.

5. Provision for Difference in Oil Stock:
The A.O. added Rs. 20.04 lacs for the difference in oil stock, which was later deleted by the CIT(A) in the quantum appeal. The CIT(A) observed that the physical inventory of oil stock was carried out in September and October 2005, making the provision allowable. The Tribunal upheld this view, noting that the penalty on this count did not survive as the addition was deleted.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order which cancelled the penalty imposed under Section 271(1)(c). The Tribunal found that the assessee had made bona fide claims and provided full disclosure of particulars in its revised return, and that the issues were debatable and justified based on the statutory auditors' report. The Tribunal emphasized that penalty proceedings are separate from assessment proceedings, and mere disallowance of claims does not justify imposing penalties.