TaxTMI 
TaxTMI 
2018 (6) TMI 749
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....me Tax Act, 1961 (the Act) amounting to Rs. 18,59,95,055/- 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....
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.... 2. At the outset, it is submitted that the addition of Rs. 8,52,79,100/- made by the AO on account of encashment 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 ....
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....as subsequently allowed by AO by passing order u/s 154 of the Act clearly shows that the issue here is only in respect of different opinions and assessee is under the bonafide 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 assess....
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....e manner sought to be deemed. As the words used in the legal fiction or the deeming provisions of Section 271 (1B) is Direction, it is imperative that the assessment order contains a direction. Use of the phrases like (a) penalty proceedings 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 cond....
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....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. 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 tot....
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....rnished a Bank guarantee numbered 316020213313-HP dated 13.05.2008 through its Banker namely Standard Chartered Bank. Asssessee failing in quality parameters - cancellation of contract by IOCL. IOCL "We have every reasons to believe that MSL is presently neither in a position to meet the quality parameters for Grade 70 pipes nor are in a position to meet the scheduled delivery requirement. " 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 lo....
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....nd that the liability to that extent has accrued to the assessee. The A.O. after elaborate discussions as given on page no. 3 to 22 of the Assessment Order concluded at page no, 20 of 22 of the Order as under :- "Conclusion: In view of the above discussions and the legal interpretations, the claim of Rs. 8,92, 74,367/- on account of encashment of bank guarantee by IOCL is disallowed as the encashment of the same is against an admitted contingent liability. Further the encashment 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 w....
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....IOCL for breach of contract. Learned CIT(A) decided as under: "6.3 The reason given by the AO and the submission of the appellant are considered. The appellant in his submission has given emphasis on the issue that encashment ofBG is a trading loss hence it should be allowed. For this, the appellant relied on various judicial decisions as mentioned in para 6.2 above. Llowever, all these judicial decisions are related to the issue whether encashment of BG is trading loss or not. The main issue in this case is whether under the facts and circumstances of the case, 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....
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....ition. In other words, provisions should be made for loan liabilities and losses even though the amount cannot be determined with certainty and represents only the basic estimate in the light of available information. The Accounting Standard issued by ICAI which are mandatory for preparation of financial statements and have to be followed inasmuch as the deviation from the same is to be reported in the audit report. Section 145(2) gives power to the Central Government to notify the accounting standards to be followed by any class of assesses or in respect of any class of income. " Again the Hon 'ble ITAT in Para 58 and 59 has concluded as under:- "58. In view of the 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 f....
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....any has booked loss of Rs. 18,28,67,127/- on accrual basis in the annual accounts for the financial year 2007-08. The said loss being notional in nature was added back in the compulation of income at the time of filing return for assessment year 2008-09. The assessee company claimed the said loss while filing return for the current year i.e. assessment year 2009-10. The AO, however, in the assessment order, under Para 2.4, Pane 21/22 has held as under:- "A reference to the audited accounts show‟s that the same has been shown as a loss in immediately preceding assessment year. The said loss was a notional loss hence it should not have any bearing on the foreign exchange gain in this year as the foreign exchange gain this year is on actual realization. If the assessee claimed 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 notiona....
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....f income, in its natural sense and grammatical meaning, implies an income is being hidden, camouflaged or covered up so that it cannot be seen, found, observed or discovered. (B) The expression „furnishing of inaccurate particulars of income‟ has also not been defined in the Act. In the context of „furnishing of inaccurate particulars‟, the expression „inaccurate‟ refers to 'not in conformity with the fact or truth‟. The expression „particulars' refers to „facts, details, specifics, or information about someone or something‟. Therefore, the plain meaning of the expression „furnishing of inaccurate particulars of income‟ implies furnishing of details or information about income which are not in conformity with the facts or truth. (C) DEEMED PROVISIONS:- In addition 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 computati....
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....propriety of claiming the expenditure in this assessment year. From the above sequence of events, it is clear that the appellant is not covered by the main provision of section 271(1 )(c) and it cannot be conclusively said that the particulars furnished by the appellant in its return of income were inaccurate or that it had concealed the particulars of its income. Now that the case of the appellant is found to be not covered under the main provisions of sec. 271(1 )(c), it would be necessary to examine the aspect of the deeming provisions of Explanation 1 to section 271 (1 )(c) which comes into play where in respect of any facts material to the computation of the total income of any person under this Act, (i) the assessee fails to provide an explanation, (ii) the assessee provides an explanation which is found to be false, and (iii) the assessee provides an explanation which he fails to substantiate and 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....
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....de by the assessee is not accepted, there is no justification to invoke the penalty provisions under section 271(l)(c) . Divergent legal views on legal interpretation of a statute can take place, but it is not necessary that there should be uniformity or consensus of opinion on the aspects of law. The assessee cannot be faulted and penalty should not be imposed because the assessee had taken a particular stand point, unless there are grounds or reasons to show that the assessee had not disclosed all the facts before the Departmental authorities concerned. 351 ITR 262 (Del)- JASWINDER SINGH AHUJA PENALTY - CONCEALMENT OF INCOME - FURNISHING INACCURATE PARTICULARS - WHETHER INCOME FROM SALE OF STOCK OPTION ASSESSABLE AS SHORT-TERM CAPITAL GAINS OR AS LONG-TERM CAPITAL GAINS - DEBATABLE ISSUE AT TIME OF FILING OF RETURN BY ASSESSEE - NO PENALTY LEVIABLE - INCOME-TAX ACT, 1961, s. 271(0(0 357 ITR 525 (Del)- SMT. NEENU DUTTA PENALTY - CONCEALMENT OF INCOME - FURNISHING INACCURATE PARTICULARS - EMPLOYEES‟ STOCK OPTION SCHEME - REVENUE TREATING GAINS NOT AS LONG-TERM CAPITAL GAINS BUT AS SHORT-TERM CAPITAL GAINS - ASSESSEE SURRENDERING RIGHT TO CO....