TaxTMI 
TaxTMI 
2015 (11) TMI 991
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....rrency loan liability. The case was selected for scrutiny and the assessment was completed under Section 143(3) of the Act, disallowing the loss claimed by the assessee and assessed the income at C4,76,517/-. The Assessing Officer had relied upon the order of the Apex Court in the case of Tuticorin Alkali & Chemicals Fertilizers Limited vs. CIT reported in 227 ITR 172 and arrived at the said conclusion on the reason that the assessee has not commenced any business activity during the year under consideration. Subsequently, notice under Section 274 read with Section 271(1)(c) was issued by the Assessing Officer showcausing the assessee as to why penalty under section 271(1)(c) of the Act cannot be levied for furnishing inaccurate particulars of income. The Assessing Officer has not considered the submission of the assessee and levied a penalty of C39,63,854/- which was 100% of the tax sought to be evaded, had the expenditure claimed by the assessee in the revised Return of Income been allowed. Aggrieved by the order of the Assessing Officer made u/s.271(1)(c) of the Act dated 26.09.2013. Against this, the assessee carried the appeal before the Commissioner of Income Tax (Appeals). ....
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....enue when it filed the original return of income. That was the reason why it filed a return showing 'NIL' Income. However, for reasons best known to it, the assessee filed a revised return claiming the very same expenditure to be 'revenue'. 6. The ld. Departmental Representative further submitted that the original return of income has been filed by the assessee within the time allowed due date for filing return of income under section 139(1) of the Act. By that time, the accounts have been finalized and audit of the accounts was also over. Therefore, there could be no change in the facts and figures, be it the profit and loss account, the balance sheet or the audit report or the Director's report. The original return of income has been filed based on these figures and facts. By signing the verification column in the return of income, the assessee had declared that the information in the return and the schedules thereto are correct and complete and the amount of total income and other particulars shown therein are truly stated and are in accordance with the provisions of the Income tax Act 1961. Therefore, at the time of filing of original return of income, th....
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....claimed by the Assessee was disallowed only on account of difference of opinion between the Assessee and the Assessing Officer, hence the levy of penalty under section 271(1)(c) of the Act was uncalled for. The Assessee had furnished all the details of its expenditure as well as income in its return of income, which details, in themselves, were not found to be inaccurate nor could be viewed as concealment of income on its part. It was upto the Assessing Officer to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted that by itself would not attract penalty under Section 271(1)(c) of the Act. The Assessee had filed the Return of Income claiming loss on account of expenditure incurred during the year as revenue expenditure allowable under Section 30 to 37 of the Income Tax Act, as the assessee has already taken steps to commence its activities and also the expenses are mainly comprising of interest payment to the bank of C1,25,30,730/- on the loan borrowed and other regular administrative expenses of C2,97,275/- which was disallowed by the Assessing Officer under the contention that the assessee has not commenced....
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....nt case, it was not the case of the Assessing Officer that the assessee has concealed the particulars of its income. The Assessing Officer has imposed penalty on the ground that the assessee has furnished inaccurate particulars of its claim of expenditure. 10. The ld. Authorised Representative for assessee placed reliance on the judgment of the Supreme Court in the case of CIT vs. Reliance Petroproducts (P.) Ltd. (cited supra), wherein it was observed as under (page 164 of the report): In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income-tax, Delhi v. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India vs. Dharamendra Textile Processors [2008] 13 SCC 369, as also, t....
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....ked at so that the contumacious conduct of the assessee for the purposes of sustaining the penalty would be taken as condition that is the main requirement under Section 271 (1) (c) of the Act. This view also finds support from the decision in CIT vs. Sidhadha Enterprises (2010) 322 ITR 80 (P&H) and CIT vs. Shahabad Co- op Sugar Mills Ltd (2010) 322 ITR 73 (P&H). In the instant case, the assessee has claimed expenditure incurred during the period of pre-commencement of business as revenue expenditure based on the Audited Statements of Account under bona fide belief, hence treating the said claim as 'furnishing inaccurate particulars' and invoking the provisions of Section 271 (1 )(c) of the Act, is against the provisions of the Act. The ld. Authorised Representative for assessee Has also pleaded during the course of appellate proceedings that the penalty proceedings are independent of the assessment proceedings. He has also relied on the decision of the Supreme Court in the case of Ananthraman Veerasinghaiah & Co. vs. CIT (cited supra) wherein it was held that the findings in the assessment proceedings cannot be regarded as conclusive for the purpose of the penalty proceedi....
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....Act does not contemplate to tax the notional gains, but the actual gains. Hence, in the present case, though the income computed as a result of restatement of foreign currency loan liability was notional in nature, the assessee has still offered such income to tax and offset against the precommencement expenses incurred by the assessee. The AO has disallowed the claim of the assessee and assessed the income of the assessee by assessing the notional income under the head 'Income from Other Sources' and disallowed the resultant loss claimed. The assessee with a view not to have protracted litigation with the Income Tax Authorities has accepted the income assessed and paid the tax due thereon even without disputing the disallowance of claim of expenditure. The AO has disallowed the assessee's claim of loss for the assessment year under consideration and invoked the provisions of Section 271(1)(c) alleging that the assessee had furnished inaccurate particulars for claim of loss and computed the quantum of penalty on the basis of tax sought to be evaded. 13. We have heard both the sides and perused the material on record. We consider it appropriate to reproduce Explanatio....
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....ows : "The Patna High Court emphasized that as to the nature of explanation to be rendered by the assessee, it was plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is given, the burden placed on him will be discharged and presumption rebutted. We agree. We further agree that it is not the law that each and every explanation by the assessee must be accepted. It must be acceptable explanation, acceptable to a fact finding body." 17. Viewed in this perspective, just because assessee has an explanation- whatever be its worth and credibility, it does not cease to be a case in which no penalty can be levied. The explanation of the assessee has to be considered on merits and one has to examine as to whether the explanation so given by the assessee can be treated as an acceptable explanation or not. 18. A plain look at the profit and loss account shows that statutory auditor has opined that the assessee has incurred loss for the year ended on 31.03.2010. There cannot indeed be any quarrel with this proposition, but then this Auditors Report does not deal with the provisions of Income Tax Act. As per Income Tax Act expenditure incu....
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....anything to indicate so, statutory deeming fiction for income in respect of which 'particulars have been concealed'. In addition to normal connotations of 'concealment' thus, a deeming fiction is also implicit in the scheme of penalty provisions. This deeming fiction, by way of Explanation 1 to section 271(1)(c) envisages two situations (a) first, where in respect of any facts material to the computation of total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or the CIT(A); and, (b) second, where in respect of any facts material to the computation of total income under the provisions of this Act, the assessee is not able to substantiate the explanation and the assessee fails to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of total income. In the first situation, the deeming fiction is triggered by the inaction of the assessee by his not giving the explanation with respect to any fact material to the computation of total income, or by action of th....
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....hen this plea overlooks the fact that when an assessee's explanation is found 'false', this case falls in category (A) of Explanation 1 to Section 271(1)(c) whereas the present case is in category (B) thereof and it covers a situation when assessee offers an explanation and not able to prove its bonafides. These two situations are mutually exclusive situation and just because conditions in part (A) of Explanation 1 are not satisfied, the revenue's case in (B) also does not come to an end. The plea of the assessee does not, therefore, acceptable. 23. Further, we also place reliance on the judgment of Supreme Court in the case of Mak Data (Pvt) Ltd. vs. CIT 358 ITR 593, wherein it was held that '' the assessee had only stated that it had surrendered the additional sum of Rs. 40,74,000 to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the Income-tax Department. The statute did not recognize those types of defences under Explanation 1 to section 271(1)(c) of the Act. The surrender of income in this case was not voluntary in the sense that the offer of surrender was made in view of....