Delhi HC deletes penalty under Section 271(1)(c) for foreign currency fluctuation losses on machinery cost capitalization

Delhi HC upheld deletion of penalty u/s 271(1)(c) regarding foreign currency fluctuation losses on machinery cost. Assessee initially claimed losses as deductible expenditure but accepted during scrutiny that losses must be capitalized under Section 43A and claimed depreciation on increased asset cost instead. Court found no penalty warranted as assessee had unabsorbed losses, gained no advantage from incorrect claim, and made course correction before assessment order. Action constituted unsustainable legal claim rather than concealment of income.

---

---

Issues Involved:
1. Deletion of penalty imposed under Section 271(1)(C) of the Income Tax Act, 1961.
2. Whether the respondent/assessee furnished inaccurate particulars of income or concealed income.
3. Applicability of judicial precedents regarding penalty imposition.

Summary:

Issue 1: Deletion of Penalty Imposed under Section 271(1)(C)
The appeal was directed against the order by the Income Tax Appellate Tribunal (Tribunal) concerning Assessment Year (AY) 2009-2010, which upheld the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision to delete the penalty of Rs. 4,40,47,933/- imposed by the Assessing Officer (AO) under Section 271(1)(C) of the Income Tax Act, 1961.

Issue 2: Furnishing Inaccurate Particulars or Concealing Income
The respondent/assessee, a public sector company, initially filed a return declaring income of Rs. 1,16,540/-, later revised to "nil." During scrutiny, the AO disallowed Rs. 14,25,49,948/- on account of foreign exchange fluctuation losses, which the respondent/assessee accepted as a bona fide error and claimed depreciation instead. The AO initiated penalty proceedings under Section 271(1)(C) for furnishing inaccurate particulars and concealing income, imposing a penalty of 100% of the tax sought to be evaded.

Issue 3: Applicability of Judicial Precedents
The CIT(A) deleted the penalty, noting that the respondent/assessee, a public sector undertaking with heavy losses and no personal benefit from the wrong claim, had not concealed income or furnished inaccurate particulars but made a wrong claim of deduction. The Tribunal upheld this decision, noting that the respondent/assessee made a course correction before the assessment order was passed, and no advantage was gained by the incorrect claim due to existing losses.

Conclusion:
The High Court observed that the respondent/assessee could not have gained any advantage by claiming the foreign currency fluctuation loss as deductible expenditure and made a course correction before the assessment order was passed. The court concluded that no substantial question of law arose for consideration, thus closing the appeal.

---