TaxTMI 
TaxTMI 
2018 (8) TMI 1130
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....issue in these appeals of assessee is against the order of CIT(A) confirming the levy of penalty by the AO under section 271(1)(c) of the Act. For this assessee has raised identically worded grounds and issues and facts are also exactly identical in both the years. In AY 2007-08, the AO has levied the penalty on the disallowance of expenditure claimed by assessee under the following heads: - * Repairs and maintenance of Rs. 12.90,040/- * Administrative and general expenditure of Rs. 28,49,577/- * Interest and finance charges of Rs. 4,04,88,60,303/- * Depreciation of Rs. 2,51,46,050/- 3. However, the AO for AY 2009-10 has levied the penalty only on the item of interest and finance charges of Rs. 332,40,17,077/-. Since, the facts and circumstances are exactly identical in both years; hence we will take up the lead year i.e. AY 2007-08 in ITA No. 853/Mum/2018 and will decide the issue. The relevant grounds raised in AY 2007-08 reads as under: - "1:0 Re.: Levy of penalty u/s. 271(l)(c). 1:1 The Commissioner of Income-tax (Appeals) has erred in upholding the penalty levied by the Assessing Officer u/s. 271(1)(c) of the Income-tax ....
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..... The interest expenditure claimed by the assessee was having direct nexus with the investment in three subsidiary companies, in which investment would yield exempt income to the assessee. Therefore, the above said interest expenditure was disallowable u/s.14A(1) of the Act being the direct interest expenditure incurred for the purposes of earning exempt income. 5. Further, the learned Counsel for the assessee took us through the Tribunal's order in quantum appeal, which is common order for AY 2006- 07 to 2010-11, wherein, the issue of disallowance of interest and finance expenses of Rs. 418,24,48,398/- was discussed as under:- "6. Brief facts are, the assessee company was formed vide notification no.398 dated 4th June 2005, as per Maharashtra Electricity Reform Transfer Scheme 2005. As per the above referred Scheme, Undertakings of Maharashtra State Electricity Board (MSEB) were transferred to and vested in four companies viz. Maharashtra State Electricity Generation Co. Ltd., Maharashtra State Power Transmission Co. Ltd., Maharashtra State Power Distribution Co., and the assessee. The assessee is wholly owned by Government of Maharashtra and in turn it holds shares of....
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....up with modification / alteration to the scheme. It was submitted, clause (9) of the said scheme, inter-alia, laid down that the scheme would be provisional for a period of one year from the date of its notification. Further, by virtue of Government of Maharashtra letter no.Reform-2006/C.R.- STI/NRG-3 dated 2nd June 2006, the period of one year was extended beyond 5th June 2006 and untill final orders by the Government of Maharashtra. He submitted, on 31st March 2016, the Government of Maharashtra brought an amendment to the transfer scheme by providing that the loans of the erstwhile MSEB are not to be transferred to the assessee company and the same will be taken over by the Government of Maharashtra w.e.f. 6th June 2005. The learned Authorised Representative submitted, in view of taking over of the loan liability along with interest accrued thereon by the Government of Maharashtra from 6th June 2005, the claim of deduction of interest and finance charges by the assessee is no longer enforceable, since, the very liability in respect of which deduction was claimed has ceased to exist with retrospective effect. The learned Authorised Representative submitted, in view of such change....
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....ity Reform Transfer Scheme, 2005 and as per clause (10B) of the said notification, the liabilities of the erstwhile MSEB were taken over by the State Government from 5th June 2005. Thus, as could be seen, as per above notification dated 31st March 2016, the loan liabilities of erstwhile MSEB which was transferred to the assessee under the transfer scheme of 2005, was taken over by the State Government with retrospective effect from June, 2005. That being the case, the liability accruing to the assessee on account of State Government loan to MSEB which stood transferred to assessee no longer remains liability of the assessee with retrospective effect. As a consequence, the interest on such loan liability is also not payable by the assessee. Therefore, by virtue of changed scenario arising out of the taking over of the loan liability of erstwhile MSEB by the State Government, the assessee is not entitled to claim the deduction of interest expenditure. In fact, during the scrutiny assessment proceedings for assessment year 2014-15, on the basis of notification dated 31st March 2016, of the State Government taking over the loan liability the assessee voluntarily came forward and filed ....
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....n 06.06.2005 into five restructured entities namely Maharashtra State Power Generation Company Ltd. (MSPGCL), Maharashtra State Electricity Transmission Company Ltd. (MSETCL), Maharashtra State Electricity Distribution Company Ltd. (MSEDCL), MSEB Holding Company Ltd. (MSEBHCL) and MESS (residual Board) has been arrived at on the basis of audited balances of erstwhile MSEB as on 05.06.2005 The allocation of these balances has been as approved by the Board of the company. Details of certain opening balances as allocated to the company are in the process of being obtained from the concerned departments of erstwhile MSEB and the further adjustment if any, arising out of such details will be carried out in due course. 8. In view of the above facts and further the loans from State Govt. amounting to Rs. 2547.09 crores, have been accounted for based on opening balances as received under provisional scheme transfer. Further, details including terms and conditions of payment of principal as well as interest are available with MSEDCL which are being sought for any further necessary accounting adjustments. Interest payable amounting to Rs. 311.61 crs for the period under review has been ac....
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....ber 2016 for the assessment year 2014-15 accepting the assessee's explanation and the withdrawal of the claim for interest debited to its Profit and Loss for the year. 10. Subsequently, when the quantum appeal for the year tiled by the assessee before the ITAT, which came up for hearing and in view of the fact that the loan liability for which the assessee was claiming the interest expenditure was taken over by the State Government with effect from 05 June 2005 (the date from which it was sought to have been transferred to it - the assessee), no longer remained a liability of the assessee. The assessee during the course of the hearing before the ITAT pointed out that it is not entitled to the deduction of the interest expenditure on such loan liability even if otherwise allowable by following the principles laid down by the Apex Court in the case of S.A. Builders v/s. CIT reported in (2006) 288 ITR 1(SC). 11. The second aspect of levy of penalty is regarding repair and maintenance expenses claimed by assessee of Rs. 12,90,040/-, the learned Counsel for the assessee before us, stated that the assessee earned rental income from letting out of its premise to its three subsidiary....
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.... the said notification, the liabilities of the erstwhile MSEB were taken over by the State Government from 5th June 2005. Thus, as could be seen, as per above notification dated 31st March 2016, the loan liabilities of erstwhile MSEB which was transferred to the assessee under the transfer scheme of 2005, was taken over by the State Government with retrospective effect from June, 2005. That being the case, the liability accruing to the assessee on account of State Government loan to MSEB which stood transferred to assessee no longer remains liability of the assessee with retrospective effect. As a consequence, the interest on such loan liability is also not payable by the assessee. Therefore, by virtue of changed scenario arising out of the taking over of the loan liability of erstwhile MSEB by the State Government, the assessee is not entitled to claim the deduction of interest expenditure. In fact, during the scrutiny assessment proceedings for assessment year 2014-15, on the basis of notification dated 31st March 2016, of the State Government taking over the loan liability the assessee voluntarily came forward and filed revised computation of income before the Assessing Officer ....
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.... is further stated in the affidavit that the return was signed by a director of the assessee who proceeded on the basis that the return was correctly drawn up and so did not notice the discrepancy between the Tax Audit Report and the return of income. 17. Having heard learned counsel for the parties, we are of the view that the facts of the case are rather peculiar and somewhat unique. The assessee is undoubtedly a reputed firm and has great expertise available with it. Notwithstanding this, it is possible that even the assessee could make a "silly" mistake and, indeed this has been acknowledged both by the Tribunal as well as by the High Court. 18. The fact that the Tax Audit Report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under section 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audi....
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....etails of a claim, or the separate items of an account. Therefore, the word "particulars" used in the section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. 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............... 9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of f....