2019 (5) TMI 1983 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - disallowance u/s.43B - Assessee had revised the tax audit report offering higher disallowance u/s.43B - HELD THAT - As only when the assessee had revised the tax audit report offering higher disallowance u/s.43B the AO has raised the query. Thus it cannot be held that revising of the tax audit report and offering of higher amount of disallowance u/s.43B was not voluntarily or the same was offered when assessee was cornered by the Assessing Officer at any point of time. Thus it cannot be held that assessee s offer for higher disallowance u/s.43B is not voluntary. Decidedin favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance under Section 43B of the Income Tax Act, 1961.
3. Validity of revised return and audit report.
4. Bona fide belief and voluntary disclosure.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee faced a penalty of Rs. 14,31,07,613/- under Section 271(1)(c) for allegedly furnishing inaccurate particulars of income. The penalty was based on the disallowance of Rs. 42,10,28,576/- under Section 43B, which the Assessing Officer claimed was not properly shown in the original return. The CIT (Appeals) confirmed the penalty, asserting that the assessee was aware of the interest payment status and could not claim a bona fide mistake. However, the Tribunal found that the revision of the audit report and the return was done voluntarily and not in response to any specific query from the Assessing Officer, thus ruling out the imposition of the penalty.

2. Disallowance under Section 43B of the Income Tax Act, 1961:
The original audit report disallowed Rs. 6,08,64,843/- as interest payable on Funded Interest Term Loan (FITL). The revised audit report, however, disallowed the entire interest payable on the original loan amounting to Rs. 48,18,93,419/-. The Tribunal noted that the revision was based on a change in interpretation and was done voluntarily before any specific query was raised by the Assessing Officer. The Tribunal held that the assessee's claim in the original return was bona fide, considering the prevailing judicial precedents at that time.

3. Validity of Revised Return and Audit Report:
The assessee filed the revised return manually on 01.09.2016 after revising the tax audit report on 26.08.2016. The Assessing Officer rejected the revised return, stating it was beyond the time limit prescribed under Section 139(5) and was filed after the issuance of notice under Section 143(2). The Tribunal observed that the revised return was filed voluntarily and not in response to any specific query from the Assessing Officer. Thus, the Tribunal found no grounds to invalidate the revised return.

4. Bona Fide Belief and Voluntary Disclosure:
The Tribunal emphasized that prior to the Supreme Court's judgment in CIT vs. Gujarat Cypromet Ltd., there were conflicting judicial precedents regarding the disallowance under Section 43B. The assessee's original claim was based on a bona fide belief supported by existing judicial precedents. The Tribunal also noted that the revision of the audit report and the return was done voluntarily, without any specific query or pressure from the Assessing Officer. Therefore, the Tribunal concluded that the assessee's actions were in good faith and did not warrant the imposition of a penalty.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the penalty levied by the Assessing Officer and confirmed by the CIT (Appeals). The Tribunal found that the assessee had acted in good faith and voluntarily revised the return and audit report without any specific query from the Assessing Officer, thus ruling out the applicability of the penalty under Section 271(1)(c).