TaxTMI 
TaxTMI 
2017 (4) TMI 104
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....n pro-rata basis as no break up of interest was given by the assessee and, therefore, it was not a case of estimation of interest waived. 1.1 On the facts and in the circumstances of the case, the ld. CIT(A) erred in cancelling the penalty of Rs. 55,34,753/- on the ground that the assessee has disclosed entire facts of waiver of interest in the return of income and accordingly there was no concealment of income because while holding so the ld. CIT(A) failed to appreciate the fact that the assessee had not disclosed the full facts related to the waiver of interest in the return of income. 1.1 1.1 Succinctly, facts as culled out from the orders of lower authorities are that the assessee has entered into one time settlement with the Bank during the subject year. Under the said settlement, Bank waived sum of Rs. 2,54,42,837/-, which included principal as well as overdue interest. Therefore, the assessee was asked to show cause as to why the same should not be charged u/s 41(1) of the Act. It was explained by the assessee that the assessee was having credit facility under which the interest debited by the Bank was clubbed with the principal amount, thereby getting a character of p....
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.... same as its income nor the bifurcation of principal amount and component of interest waived, was furnished. Therefore, on pro-rata basis, the component of interest waived was worked out at Rs. 1,51,25,582/- and the same was added to the total income. The AO further observed that the arguments of the assessee that Bank had not given the break up of the principal amount and interest in the settlement letter. The AO noted that the examination of the past records shows that the assessee had claimed expenditure on account of interest payable on the cash credit facility provided by the Bank. Thus, the character of the same would always remain the revenue expenditure for the purpose of the provisions of Section 41(1) of the Income-tax Act, 1961, irrespective of the fact that the same was considered by the Bank or by the assessee in the subsequent previous year of its accrual. As per the provisions of Section 41(1), any expenditure or deduction claimed in any previous year and written off in subsequent year needs to be considered as profit for the assessment year in which the same has been written off. Therefore, it follows from the above discussion that the remission of interest claimed ....
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....n the return. Accordingly, the AO levied the a minimum amount of penalty of Rs. 55,34,753/-. 1.2 Being aggrieved, the assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) has observed that the AO made addition based on one time settlement of the assessee with the State Bank of India against its outstanding dues of Rs. 3,75,42,837/- . This balance comprised of principal amount of loan of Rs. 1,52,23,892/- and interest of Rs. 2,23,18,945/-. As per the one time settlement, the assessee paid Rs. 1.21 crores to the Bank and balance of Rs. 2,54,42,837/- was waived. Thus, the AO came to the conclusion that out of the aforesaid amount the proportionate amount allocable to interest is Rs. 1,51,25,582/- on the basis of proportion of total amount of interest ( i.e. Rs. 254 crores x 2.32 crores x 3.75 crores). The rest of the amount of Rs. 1.03 crore was considered as waiver of principal loan amount. Therefore, this waiver of interest apportioned of Rs. 1.51 crores was added in the hands of the assessee u/s 41(1) of the Act as the cessation of liability. The AO found this approach of the AO as judicious and hence observed that the same cannot be disturbed and even the assessee can....
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.... ITR 125 (Guj), wherein it was held that when two views are possible, no penalty can be imposed and the aforesaid decision of Hon'ble Mumbai High Court, held that the levy of penalty is not justified in this case. 1.2.2 Being aggrieved, the Revenue filed this appeal before the Tribunal. The ld. DR submitted that the assessee was having its outstanding dues of Rs. 3,75,42,837/- with State Bank of India. The assessee entered into a settlement with SBI by which the assessee has paid Rs. 1.21 crores to the Bank and balance of Rs. 2.54 crores was waived. The outstanding amount of Rs. 3,75 crores was comprising the principal amount of Rs. 1.52 crores and interest of Rs. 2.23 crores. 1.2.3 The ld. DR referred the findings of the AO as recorded in para 4.3.2 of the penalty order, wherein the AO noted that remission amount of Rs. 2,23,18,945/- was of inclusive of principal amount of Rs. 1,52,23,892/-. Hence, the remission of the quantum of interest was atleast of Rs. 70,95,053/- ( Rs. 2,23,18,945/- (-) Rs. 1,52,23,892/- ). Therefore, the ld. DR contended that when the principal amount itself was less than the amount waived of by the Bank, the assessee was required to disclose the ....
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....the assessee non disclosing the particular fact. The ld. DR supported his further view by placing reliance on the decision of Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication (P) Limited, (2010) 327 ITR 510 (Del), wherein it was held that the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty even if he was not acting bona fide while making a claim of this nature, that would give a licence to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them - Assessee did not explain either to the IT authorities or to the Tribunal as to in what circumstances and on account of whose mistake, the amounts claimed as deductions were not added while computing the income of the assessee company - amounts claimed as deductions were not added while computing the income of the assessee company - If the claim besides being incorrect in law is mala fide, Expln. 1 to Section. 271(1) would come into play. Therefore, the ld. DR further submitted that the decision relied upon by the ld. Authorized Represent....
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....cts that it is not the real income received but it is a settlement between debtor and creditor. Moreover, the penalty could not be initiated unless there is evidence of concealment or furnishing inaccurate particulars. The assessee has clearly shown in the return and annexure that one time settlement has been reached with the assessee and his bankers. Quantum of settlement was also specific and clear in return of income and final accounts annexed thereto. Therefore, the assessee has not suppressed any particulars or furnished any inaccurate particulars. On the other hand, the income has been assessed by the AO by applying self designed formula of pro-rata basis. Even the AO and CIT(A) were not firm on the question of quantum of interest paid. Therefore, the amount of Rs. 1,51,25,582/- assessed u/s 41(1) is nothing but guess work on the part of the AO. It may also be seen that the AO as well as CIT(A) have estimated the amount of Rs. 1,51,25,582/-. No penalty u/s 271(1)(c) could be levied on the basis of estimate and, accordingly, the ld. CIT(A) has rightly deleted the penalty. The ld. Authorized Representative of the assessee also relied on the case of Northland Development and Hot....
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....was not possible for the assessee to bifurcate as to how much amount is principal and how much amount on account of interest is waived off. Ld. DR has contended that out of total remission amount of Rs. 2.23 crores, the principal amount of loan taken by the assessee was at Rs. 1.52 crores, therefore, Rs. 70.95 lakhs ( Rs. 2.23 crores (-) Rs. 1.52) at least interest component, therefore, the assessee is alleged to have furnished inaccurate particulars of income to this extent. However, we find that the total amount outstanding was at Rs. 3.75 crores as against which one time settlement was reached subject to payment of Rs. 1.21 crores to the Bank. Further, that no dues certificate issued by SBI dated 08.08.2005 in which Bank has only mentioned that liability of the assessee stands discharged, but the Bank has nowhere mentioned as to whether the payment made by the assessee of Rs. 1.21 crores was adjusted towards loan amount or towards interest amount. Hence, there was no clarity from the said letter as to which amount was waived. Therefore, we are of the considered opinion that the pro-rata bifurcation of the amount of waiver of Rs. 2.54 crores as done by the AO is filed with an est....
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.... the Commissioner] to be false, or... 1.5.2 Thus, Explanation 1 to Section 271(1)(c) provides that penalty would be deemed to attract where in respect of the fact material to the computation of income either no explanation is offered or explanation offered found to be false. In the case of the assessee, we find that the AO has made addition by applying deeming provisions of Section 41(1) and making pro-rata bifurcation of the amount waived by the Bank into principal and interest component. These facts found disclosed by the assessee in the profit and loss account as well as notes in account of clause 'h' of Schedule P appearing at page 11 of the paper book. The AO has not doubted the amount disclosed in the profit and loss account. The assessee has furnished all relevant facts and merely because that it was not found acceptable by the AO does not mean that the penalty is automatic. Thus, the assessee has offered explanation, which was not found to be false and, accordingly, clause 'A' of Explanation 1 to Section 271(1)(c) does not cover the case under consideration. 1.5.3 Clause (B) of Explanation 1 to Section 271(1)(c) provides that where the assessee is not able to substant....