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2014 (5) TMI 1037 - AT - Income TaxPenalty u/s 271(1)(c) - loss on account of currency fluctuation debited - Held that - It is also true that the assessee has to evaluate the current position of such foreign exchange loan as on the last day of the previous year. If a liability is cast on the assessee on account of fluctuation in foreign exchange rate the assessee has to provide for the same in its books of account. This is a mandatory provision for companies. The assessee has provided for such liability arising out of the currency fluctuation. In respect of such liability arising out of the currency fluctuation treatment has to be given in two ways ; first in respect of revenue items and second in respect of capital items. In the present case loss of RS.1, 93, 13, 616 related to capital items and therefore the said loss should have been added to the cost of assets acquired by the assessee utilising the foreign exchange loan as provided under section 43A. On the other hand in its return the assessee claimed this amount also as loss instead of claiming higher amount of depreciation. This is not a case of concealment of income or furnishing of inaccurate particulars. This is a case of a mistake or an oversight or at the best a case of wrong claim. There is no scope to invoke section 271(1)(c) in the present case. - Decided in favour of assesse.
Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961. 2. Furnishing of inaccurate particulars of income. 3. Applicability of section 43A versus section 37 for foreign exchange loss. 4. Consideration of Accounting Standards in tax assessment. 5. Justification of penalty based on Explanation 1 to section 271(1)(c). Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c): The appeal pertains to the penalty imposed under section 271(1)(c) for the assessment year 2009-10. The assessee, a manufacturer/trader of hygiene care products, initially declared a loss of Rs. 6,76,37,054. During scrutiny assessment, the Assessing Officer (AO) found that the assessee had debited Rs. 4,41,79,165 towards loss on account of currency fluctuation. Upon further examination, the assessee revised the loss to Rs. 5,12,20,481 by withdrawing Rs. 1,93,13,616 of the currency fluctuation loss, which was accepted by the AO. Subsequently, the AO levied penalty under section 271(1)(c) for furnishing inaccurate particulars of income to the extent of Rs. 1,93,13,616. 2. Furnishing of Inaccurate Particulars of Income: The AO's contention was that the inaccurate particulars were discovered only due to the scrutiny assessment, and without it, the excess claim would have gone unnoticed, leading to concealment of income. The assessee argued that a wrong claim does not ipso facto justify the levy of penalty under section 271(1)(c), citing several judicial precedents including Challapalli Sugars Ltd. v. CIT, CIT v. George Oakes Ltd., and CIT v. Reliance Petro Products P. Ltd. 3. Applicability of Section 43A versus Section 37 for Foreign Exchange Loss: The Commissioner of Income-tax (Appeals) (CIT(A)) held that the assessee should have considered the foreign exchange loss on fixed assets under section 43A, rather than under section 37. The CIT(A) relied on the decisions in Sutlej Cotton Mills Ltd. v. CIT and CIT v. Bharat Heavy Electricals Ltd. to support this view. The CIT(A) concluded that the assessee furnished inaccurate particulars by claiming the foreign exchange loss as a deduction under section 37. 4. Consideration of Accounting Standards in Tax Assessment: The assessee contended that the foreign exchange loss was calculated following the mandatory Accounting Standards. The CIT(A) acknowledged this but maintained that the specific treatment under section 43A should have been followed. The Tribunal noted that the assessee had disclosed the foreign exchange fluctuation loss in its financial statements and adjusted it according to Accounting Standards 11. 5. Justification of Penalty Based on Explanation 1 to Section 271(1)(c): The CIT(A) confirmed the penalty relying on Explanation 1 to section 271(1)(c), which the Tribunal found inappropriate. The Tribunal observed that the assessee's explanation for the mistake was bona fide and not false. The Tribunal emphasized that the wrong claim did not amount to furnishing inaccurate particulars or concealing income, referencing the Supreme Court's judgment in CIT v. Reliance Petro Products P. Ltd., which clarified that disallowance of a claim does not automatically lead to penalty under section 271(1)(c). Conclusion: The Tribunal concluded that the case involved a wrong claim rather than concealment of income. The assessee's mistake in claiming the foreign exchange loss under section 37 instead of section 43A was identified during scrutiny assessment, which is a legitimate process to correct such errors. The Tribunal set aside the orders of the lower authorities and canceled the penalty, allowing the appeal filed by the assessee. The order was pronounced on May 23, 2014, at Chennai.
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