2023 (7) TMI 999 - HC - Income Tax

Penalty u/s 271(1)(c) Overturned: ITAT's Decision Upheld; No Substantial Question of Law Found.

The Pr. Commissioner Of Income Tax -Central -1 Versus Valley Iron & Steel Co. Ltd.

The HC upheld the ITAT's decision to set aside the penalty of Rs. 14,31,07,613 imposed under Section 271(1)(c) of the Income Tax Act for AY 2014-15. The ... Penalty u/s 271(1)(c) - Enhancement of disallowance u/s 43B by assessee - course-correction was carried out with the submission of a revised tax audit report - ITAT set aside penalty levy - HELD THAT:- Tribunal correctly noted that there is no dispute about the fact that a specific query with regard to the issue concerning disallowance under Section 43B of the Act was raised by the AO for the first time via notice dated 21.11.2016 issued under Section 142(1) of the Act. Therefore, as correctly argued by assessee it was not, as is noted by the AO, that the disallowance under Section 43B of the Act was not correctly recorded in the tax audit report and the respondent/assessee made a course-correction only thereafter. What is not in dispute is that, at the relevant time, there were judgments of GUJARAT CYPROMET LTD. [2006 (8) TMI 664 - GUJARAT HIGH COURT] which took the view that favoured the respondent/assessee - it cannot be said that the enhancement of disallowance under Section 43B of the Act carried out by the respondent/assessee was not voluntarily. Decided in favour of assessee. Issues involved:The appeal concerns the Assessment Year (AY) 2014-15. The main issue is the penalty levied on the respondent/assessee under Section 271(1)(c) of the Income Tax Act, 1961 amounting to Rs. 14,31,07,613, on account of disallowance under Section 43B of the Act.Summary of Judgment:Issue 1: Disallowance under Section 43B of the ActThe Tribunal set aside the penalty imposed on the respondent/assessee under Section 271(1)(c) of the Income Tax Act, amounting to Rs. 14,31,07,613, due to disallowance under Section 43B of the Act. The disallowance was enhanced voluntarily by the respondent/assessee from Rs. 6,08,64,813 to Rs. 48,18,93,419. The Tribunal found that the enhancement was not triggered by any specific notice from the Assessing Officer (AO) but was made suo motu. The AO raised a query regarding the disallowance under Section 43B for the first time via a notice dated 21.11.2016 under Section 142(1) of the Act. The Tribunal concluded that the penalty imposition was not justified as the enhancement was voluntary and not due to any specific notice.Issue 2: Legal ArgumentsMr. Aseem Chawla, representing the appellant/revenue, argued that the Tribunal's decision was unsustainable in law, citing judgments such as Gangotri Textiles Ltd. v. Deputy Commissioner of Income-tax. On the other hand, Mr. Abhimanyu Jhamba, representing the respondent/assessee, contended that the Tribunal correctly considered decisions favoring the respondent/assessee, including a judgment in Tax Appeal No. 231 of 2006.Issue 3: Comparison with Previous JudgmentsThe judgment highlighted that the decisions in Gangotri Textiles Ltd. and MAK Data (P) Ltd. were distinguishable from the present case. The Madras High Court's decision involved concealment of income, while the Supreme Court's decision in MAK Data (P) Ltd. was based on documents discovered during a survey under Section 133A of the Act. The court found that these cases were different from the current scenario.ConclusionThe High Court upheld the Tribunal's decision, stating that no substantial question of law arose for consideration. The appeal was closed, and parties were instructed to act based on the digitally signed copy of the order.