TaxTMI 
TaxTMI 
TaxTMI 
2018 (6) TMI 749
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....95,055/- in respect of the additions made by the AO pertaining to patently wrong claims of the assessee relating to encashment of bank guarantee, claim of loss on account of Mark to Market Transaction and claim of loss on foreign exchange? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in setting aside the penalty order u/s 271(1)(c) of the Act without considering provisions of Explanation 1 to Section 271(1)(c) of the Act? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) is justified in deleting the penalty u/s 271(1)(c) of the Act on disallowances made by the AO on account of claim of loss on account of Mark to Market Transaction amounting to Rs. 27,90,59,000/- and claim of loss on foreign exchange amounting to Rs. 18,28,67,127/- without considering a fact that as per assessee‟s own admission, these claims were not allowable during year under consideration? 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in not upholding the penalty order u/s 271(1)(c) of the Act by ignoring ratio dicidendi as upheld by Hon‟ble jurisdictional High Cour....
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....t of bank guarantee was deleted by the Hon‟ble ITAT vide order dated 28/06/2017 in ITA No 2479/D/2014 (PB Pg. 143, Relevant findings are at Para 8 Internal Page 8, PB Pg 150). Since the addition on which penalty has been levied was deleted by the Hon‟ble ITAT. penalty on such addition does not survive.(K. C. Builders v. Asst. CIT [2004 (1) TMI 7 - SUPREME Court). Thus, penalty levied by the AO on this issue need to be deleted. 3. The second issue is regarding penalty on the disallowance of claim of loss on account of marked to market transaction amounting to Rs. 27,90,59,000/- During the year under consideration assesse company has claimed Marked to Market loss amounting to Rs. 27,90,59,000/- on the hedged contract on account of foreign exchange fluctuation. During the assessment proceedings Ld. AO has applied instruction No. 03/2010 dated 23/03/2010 issued by CBDT and disallowed loss claimed by the assesse treating the such loss as contingent in nature and thus to be allowed on actual basis. After the order passed by the Ld. AO accepting the legal position, the assesse revised its return within the time limit for revising return u/s 139(5) for the subsequent a....
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....belief that the claim is allowable in the AY 2009-10 whereas AO allowed the same in AY 2008-09. Further, the penalty is levied on account of concealment of income, however, since the claim was admitted in the preceding year by the AO, by passing order u/s 154/143(3) of the Act, there is no scope of concealment of income also. In the present case, this notional loss claimed by the assessee is due to reinstatement of his assets and liabilities. The loss has been itself disallowed by the assessee and has been adjusted by it in the next year. However, since Ld. AO himself of the view that the loss is allowable in AY 2008-09 only, he allowed the claim of the assessee in AY 2008-09. The fact that the assessee itself had already taxed such claim in AY 2008-09 at the time of filing of return in AY 2008-09. Thus, This is a clear case of bonafide mistake 5. In the present case, under both the issues the assessee had a bonafide belief that the claim is available in the impugned assessment year. The AO also admitted the claims made by the assessee. Thus, it is proved that there is no concealment of income. Thus, merelythe disallowance has been made itself cannot be ground for levyi....
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....dings are being initiated separately and (b) penalty proceedings under Section 271(1)(c) are initiated separately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. The word „direction‟ has been interpreted by the decision of the Apex Court in the case of RAJENDRANATH reported in 120 ITR pg.14, where it has been held that in any event whatever else it may amount to, on its very terms the observation that the ITO is free to take action, to assess the excess in the hand of the coowners cannot be described as a direction. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the ITO whether or not take action, it cannot be described as a direction. 51. Therefore, it is settled law that in the absence of the existence of these conditions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside." 7. The above principle laid down by the Karnataka High Cou....
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....lant regarding expenditure of Rs. 85279100 which is in the nature of unascertained liability. In view of this, the addition made by AO is confirmed and the ground of appeal is dismissed. b) Against the second addition i.e. disallowance of Rs. 27,90,59,000/- on account of marked to market losses, the same was not adjudicated on the plea of the appellant that the issue has been considered by AO under section 154. c) Similarly the third addition of Rs. 18,28,67,127/- on account of Disallowance of foreign exchange loss was not adjudicated on the appellant plea that the AO has allowed this amount vide order under section 154 dated 21.01.2013. After receiving the order of Id. CIT(A), the Id. AO started penalty proceedings under section 271(1 )(c). After considering the explanation of the appellant, the Id. AO levied penalty total additions of Rs. 54,72,05,227/- i.e. the additions made as per the assessment order dated 28.12.2011 for assessment year 2009-10. The AO in the penalty order has stated that minimum penalty (equal to hundred percent of tax sought to be evaded) is hereby imposed upon the assessee under section 271(1 )(c) of the Act with the prior approval of ADIT, Range-....
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....rement. " Subsequently IOCL initiated action to procure the goods from some other alternative source at the risk & cost of M/s Maharashtra Seamless Ltd. IOCL raising a claim on assessee and invoking bank guarantee. IOCL raised a claim on MSL for the difference in price amounting to Rs. 17,98,48,063.63/- as per clause 4.23.3 of the purchase order vide letter, dated 29.11.2008 (PB Page No! 61). Subsequently IOCL issued letter, dated 01.12.2008 (PB Page Nol62-163) to bank namely Standard Chartered Bank for encashment of Bank Guarantee of Rs. 8,52, 79,100/- in part consideration of the above said claim. The bankers of the appellant honored the claim, paid the amount of Bank guarantee to IOCL and debited the same to the appellant. The appellant lodging arbitration proceedings and mention of the same in audit report. The aforesaid facts were disclosed in the Balance Sheet in its Notes to Accounts. Notes to audited accounts are placed at PB page no.23 and the same is reproduced as under: "Indian oil Corporation Ltd. (IOCL) had raised a claim of Rs. 179,848,,064/- during the financial year 2008-09 & against the above mentioned claim a performance bank guarantee of Rs. 85,....
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....cashment itself has been challenged before the arbitrator and therefore is subject to uncertainty in future. This gives it a colour of contingent liability which is not allowable as per the Income Tax Act. " Definition of contingent liability As per AS- 29 " Provisions, Contingent Liabilities and Contingent " issued by the Institute of Chartered Accountants of India and notified under the Income Tax Act, 1956, "Contingent liability" is defined as under: A Continsenl Liability is : (a) a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; Or (b) a present obligation that arises from past events but is not recognized because: (i) it is not probable that an outflow of resources embodying economic benefit will be required to settle the obligation: or (ii) a reliable estimate of the amount of the obligation cannot be made. With encashment of bank guarantee - contingent liability assuming the character of ascertained liability as per assessee With regards to the aforesaid the liability o....
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.... the encashment of BG by IOCL is a contingent liability or ascertained liability. Hence, case laws cited are no/ applicable to the issue under examination. On this issue, the arguments provided by appellant are very weak and AO's findings are more relevant. The very fact that the appellant has not accepted the adjustment of BG and filed a counter claim establishes that it is a contingent liability as per AS-29. There is no agreement between IOCL and the appellant regarding expenditure of Rs. 85279100 which is in the nature of unascertained liability. In view of this, the addition made by AO is confirmed and the ground of appeal is dismissed. From the above, the following facts emerge. -There is a contract between assessee and IOCL for supply of pipes. -IOCL raised a claim against assessee for failure to fulfill the terms of contract. - IOCL also invoked the bank guarantee and collected 8.53 crores from the bank. - The assessee went for arbitration. - The amount recovered by IOCL was claimed by assessee as expenditure in P&L account. - The AO disallowed the same treating it as contingent liability. A claim made by assessee in ITR - whether can be treated ....
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....he above discussion, we allow the assessee‟s appeal for the following reasons:- i) A binding obligation accrued against the assessee the minute it entered into forward foreign exchange contracts. ii) A consistent method of accounting followed by assessee cannot be disregarded only on the ground that a better method could be adopted. iii) The assessee has consistently followed the same method of accounting in regard to recognition of profit or loss both, in respect of forward foreign exchange contract as per the rate prevailing on March 31. iv) A liability is said to have cryslalised when a pending obligation on the balance sheet date is determinable with reasonable certainty. The considerations for accounting the income are entirely on different footing. v) As per AS-11, when the transaction is not settled in the same accounting period as that in which it occurred, the exchange difference arises over more than one accounting period. vi) The forward foreign exchange contracts have all the trappings of stock-in trade. vii) In view of the decision of Hon'ble Supreme Court in the case of Woodward Governor India (I) P.Ltd., the assessee's claim is allo....
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....laimed the loss in its audited accounts last year then the assessee has to correct that entry in that year itself and should have filed a revised return for claiming the bene fit of the said revised entry. If that mistake was committed by the assessee in the immediately preceding year then the same cannot be claimed by the assessee in this year in the computation of income. Therefore the notional loss computed in last year cannot be set off against actual foreign exchange gain of this year. " Latest status regarding disallowance In line with the aforesaid observation of the learned AO, the assessee filed rectification application under section 154 pertaining to assessment year 2008-09. The DCIT vide its order, dated 21.01.2013 has allowed the loss of Rs. 18,28,67,127/- in the precedins year i.e. assessment year 2008-09. Gist of the above facts Penalty relating to addition of 8.53 crores relating to encashment of bank guarantee claimed as expenditure. The dispute between the department and the appellant is that ‟whether it is contingent liability or ascertain liability, for the year under consideration. Penalty relating to disallowance of 27.91 crores on account....
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....n to these two situations, penalty can also be imposed, inter alia, when assessee is deemed to have concealed particulars of income under Explanation 1 to Sec. 271(1 )(c). A deeming fiction under explanation 1 to sec. 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 AO 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 all the facts relating to the same and material to the computation of his total income have been disclosed by the assessee. Thus, the penalty under sec. 271 (1 )(c) is a penalty for concealment of income or for furnishing of inaccurate particulars, or, under the extended definition by the virtue of Explanation 1 to sec. 271(1 )(c), for a deemed concealment of income. 3.4 The facts of the present case are now tested vis-a-vis the....
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.... he fails to prove that the explanation was bona fide and that all the facts necessary for the same and material for computation of income have been duly disclosed by the assessee. The above explanation rendered by the appellant, is backed by the corroborative evidences. Considering the above explanations rendered by the appellant can be held to be in possession of bona fide explanation which a reasonable person can be expected to believe, particularly, since its is substantiated with some supporting evidences. The basis and justification of levy of concealment penalty is to be decided in the facts and circumstances of each case. Undoubtedly, the Courts have held that where the issue is debatable or involves a matter of interpretation of complex legal provisions, or where the additions have been made on estimate basis without reference to any supporting materials/evidences, the assessee could not be held to be guilty of concealment. The assessing officer never made any attempt in the penality proceedings to prove that the claim made by the assessee is false or made with malafide intention. 322 ITR 158 (SC)-RELIANCE PETROPRODUCTS PVT. LTD. Incorrect claim - does not a....
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....S - EMPLOYEES‟ STOCK OPTION SCHEME - REVENUE TREATING GAINS NOT AS LONG-TERM CAPITAL GAINS BUT AS SHORT-TERM CAPITAL GAINS - ASSESSEE SURRENDERING RIGHT TO CONTEST ISSUE ON CONDITION NO PENALTY WOULD BE IMPOSED - WHETHER GAINS LONG-TERM OR SHORT¬TERM. A CONTENTIOUS ISSUE AT MATERIAL TIME - NOT A CASE OF FURNISHING INACCURATE PARTICULARS OR CONCEALMENT OF INCOME - NO PENALTY LEVIABLE - INCOMETAX ACT, 1961, s. 271(1 )(c) 357 ITR 665 (Del)- ELECTROLUX KELVENATRO LTD. PENALTY - CONCEALMENT OF INCOME - NON-COMPETE FEE - WHETHER CAPITAL OR REVENUE EXPENDITURE - ISSUE DEBATABLE AND NOT FREE FROM DOUBT WHEN ASSESSEE FILING RETURN - PENALTY COULD NOT BE IMPOSED - INCOME-TAX ACT, 1961, s. 271(13(0 When the assessee makes claim for a deduction and disclosed all necessary facts relating to the same, this cannot be regarded as concealment even if the claim is rejected. As already mentioned, it is trite law that penalty proceedings are distinct from assessment proceedings and therefore, if any addition is made in the assessment year, it does not mean that the penalty will automatically be levied. To sum up, therefore, by raising the bonafide legal claim in the return of inc....