TaxTMI 
TaxTMI 
2014 (6) TMI 606
X X X X Extracts X X X X
X X X X Extracts X X X X
....the maintainability in law of the levy of penalty u/s.271(1)(c) in the facts and circumstances of the case. 3. The brief facts of the case are that the assessee, a company in the business of manufacturing and supply of automatic powder coating systems, was during the course of assessment proceedings observed to have claimed interest levied and paid u/ss.234A, 234B and 234C, at Rs.10,51,834/- in aggregate, as financial expense per its return of income (ROI) for the year. The assessee, on being called upon to justify the said claim, agreed to the disallowance. In the penalty proceedings, initiated at the conclusion of the assessment on 26.09.2011, the assessee's explanation was of ignorance in-as-much as the assessee was managed by technocra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he relevant year, would advert to the answer to the specific Question # 17 (vide clause (f)) of the tax audit report (in Form 3 CD), which states the disallowance u/s. 40(a) as 'Nil'. The error had thus occurred at the end of the company's auditor, which found manifestation in the ROI. The said argument, also adopted before the Revenue, fails on scrutiny. This is as section 40(a)(ii) speaks of non-deductibility of rates and taxes on or based on profits and gains of business or profession. There has thus occurred no mistake in the audit report and, accordingly, by the auditors, who are independent professionals, in the conduct of audit and reporting on its basis. Further, reliance stood also placed before us on the Guidance Note to the revi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nment to any independent professionals, as an Auditor in the case of financial statements, who would thus also appropriate upon himself any penal action arising out of misreporting. The disallowance of the impugned interest is not u/s. 40(a), as being contended, but u/s.36(1)(iii) in-as-much as the same is not incurred for any business purpose. The tax under the Act as well as the interest on the short fall in its payment is paid by the assessee not in his capacity as a trader, but as a taxable entity under the Act, levying tax on income or profits from any activity, including from business or profession. The same, thus, does not qualify to be an outgoing of the business, which has to be adjudged in the light of the accepted commercial prac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yet qualify to be a 'mistake'? The same would no longer entitle it to be so described. It is for this reason that the hon'ble courts of law, as also the tribunal have, where convinced that a mistake has occurred, disqualifying the assessee's case under Explanation 1(B), deeming concealment or furnishing inaccurate particulars of income, yet ruled against the levy of penalty u/s.271(1)(c), which penalizes the same. This is part of settled law, having recently found endorsement by the apex court in Price Waterhouse Coopers (P.) Ltd. (supra), with in fact the assessee also relying on decisions by the hon'ble high courts toward the same, viz. Pandit Govind Prasad Mishra vs. CIT 1999] 238 ITR 338 (Allahabad); CIT vs Sidhartha Enterprises [2010] ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roviding for levy of tax on income, on default in complying with its provision, so that it would, from the business stand point, assume the same character as that of tax under the Act. The assessee is well conscious thereof, but yet chooses to represent it as a business expenditure for the year in its accounts. What, one may ask, is the business purpose of the expenditure? The same is clearly a misrepresentation. A separate disclosure would in any case be necessitated, which would be so also for the reason that the interest would relate, if only in part, to a preceding year, assessment for which would have been finalized during the current year; interest being compensatory and, as such, relating to the period of the default. Again, even so,....