2015 (11) TMI 991 - AT - Income Tax

Penalty u/s. 271(1)(c) - disallowance of the loss claimed - Held that - A plain look at the profit and loss account shows that statutory auditor has opined that the assessee has incurred loss for the year ended on 31.03.2010. There cannot indeed be any quarrel with this proposition, but then this Auditors Report does not deal with the provisions of Income Tax Act. As per Income Tax Act expenditure incurred during pre-commencement period cannot be allowed as deduction while computing the income of the assessee. There was thus no reason for assessee to deviate from the provisions of Income Tax Act, when admittedly the assessee has not commenced its business activities in the assessment year under consideration. The onus is on the assessee to prove that the explanation is bonafide but there is nothing from the assessee to even indicate, leave aside proving, that there was any reason to believe that the expenditure is allowable. The Auditor s report did not deal with this aspect at all. One can perhaps even understand ignorance about a legal provision, but once the assessee is on record not only being aware about this provision but also preparing the income tax return in the light of the said provision, there cannot be any justification about assessee ignoring the clear mandate of the provision. Such an action on the part of the assessee, in our considered opinion, cannot be said to be bonafide. In our humble understanding, the explanation of the assessee is not acceptable and we reject the same. In any case, Auditors report obtained by the assessee cannot override Income Tax provisions and just because the assessee s claim is supported by a chartered accountant s opinion, this fact per se cannot absolve the assessee from penalty under section 271(1)(c). Claim of the assessee towards administrative expenditure and finance charges as business expenditure is not at all admissible as the assessee has not commenced business during the relevant financial year under consideration. The Assessing Officer is of the view that the expenditure is not based on any sound reason as the assessee was fully aware of the facts that it is not revenue expenditure when it had filed its original return of income. Therefore, it cannot be said that the assessee discovered any omission or wrong statement subsequent of filing of original return of income on 14.10.2010. Being so, it cannot be believed that the assessee chose to revise its earlier return consequent upon knowing that there are omissions or wrong statements in the original return of income. The assessee is having full knowledge about the wrong claim made by it and therefore, it cannot take a plea that the error is bonafide and it is to be condoned. Being so in the present case the impugned penalty is not in respect of a bogus claim but in respect of making a claim which is patently inadmissible. In such a situation, it is difficult to understand, much less approve, this plea of the assessee that the assessee as bonafide in claiming the expenditure. In our opinion levy of penalty by Assessing Officer u/s 271(1)(c) of the Act is justified and accordingly, we reverse the order of the Commissioner of Income Tax (Appeals) and restore that of the Assessing Officer. - Decided in favour of revenue

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Filing of revised return and the claim of loss by the assessee.
3. Assessment of the assessee's explanation and the nature of the expenditure claimed.
4. Applicability of Supreme Court and High Court judgments in the context of penalty under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The Revenue appealed against the deletion of penalty by the Commissioner of Income Tax (Appeals) which was levied by the Assessing Officer under Section 271(1)(c) for furnishing inaccurate particulars of income. The penalty was initially levied because the assessee claimed a loss in the revised return which was disallowed by the Assessing Officer.

2. Filing of Revised Return and the Claim of Loss by the Assessee:
The assessee filed a revised return declaring a loss of Rs. 1,23,51,488/- after initially declaring Nil income. The Assessing Officer disallowed the loss and assessed the income at Rs. 4,76,517/- citing the Supreme Court judgment in Tuticorin Alkali & Chemicals Fertilizers Limited vs. CIT, which stated that the assessee had not commenced any business activity during the year under consideration. The revised return was filed under the belief that the expenditure was 'revenue expenditure', but the original return indicated that the assessee did not believe the same expenditure to be revenue when initially filed. The Departmental Representative argued that filing a revised return claiming loss as against Nil income amounted to furnishing inaccurate particulars.

3. Assessment of the Assessee's Explanation and the Nature of the Expenditure Claimed:
The assessee argued that the expenditure was claimed under a bona fide belief based on the Audited Statements of Account and that there was no concealment of income. The Commissioner of Income Tax (Appeals) relied on the Supreme Court judgment in CIT vs. Reliance Petro Products Pvt. Ltd., which stated that merely making an incorrect claim does not tantamount to furnishing inaccurate particulars. The assessee also cited the Supreme Court decision in Ananthraman Veerasinghaiah & Co. vs. CIT, which held that findings in assessment proceedings are not conclusive for penalty proceedings.

4. Applicability of Supreme Court and High Court Judgments in the Context of Penalty under Section 271(1)(c):
The Departmental Representative contended that the Commissioner of Income Tax (Appeals) erred in relying on the judgment of CIT vs. M/s. Gem Granites, which emphasized looking into the bona fide explanation of the assessee. The Tribunal noted that the assessee's explanation was not acceptable and that the claim of expenditure was patently inadmissible, as the assessee had not commenced business activities during the relevant financial year. The Tribunal also referred to the Supreme Court judgment in Mak Data (Pvt) Ltd. vs. CIT, which held that surrendering income to avoid litigation does not absolve the assessee from penalty.

Conclusion:
The Tribunal concluded that the assessee's claim of expenditure was not bona fide and that the revised return was filed with full knowledge of the inadmissibility of the claim. The penalty under Section 271(1)(c) was justified, and the order of the Commissioner of Income Tax (Appeals) was reversed, restoring the Assessing Officer's order. The appeal of the Revenue was allowed.

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