2019 (1) TMI 1394 - HC - Income Tax

Penalty levied u/s 271(1)(c) - loss on account of foreign exchange fluctuation - claim as revenue expenditure disallowed - Held that - This was a case where there was difference of opinion in the manner in which loss on account of foreign exchange fluctuation is to be treated. This being a pure difference of opinion is further corroborated by the fact that all details of the claim made were available with the Assessing Officer at the time of regular assessment proceedings. Mere rejection of claim made by the AO would not by itself lead to imposition of penalty under Section 271(1)(c) of the Act. The explanation offered by the respondent was found to be reasonable No suppression of facts and all particulars of its income were disclosed by the respondent in its regular assessment proceedings. Thus, merely disallowance of claim made by the Assessing Officer cannot by itself justify an imposition of penalty as held by the Apex Court in Reliance Petro Products Ltd (2010 (3) TMI 80 - SUPREME COURT). - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2000-01 and 2002-03.

Analysis:
The appeals arose from a common order passed by the Income Tax Appellate Tribunal, deleting the penalty under Section 271(1)(c) of the Income Tax Act, 1961 for the mentioned assessment years. The main question of law raised by the Revenue was whether the Tribunal was justified in deleting the penalty based on the explanation offered by the assessee.

In the case related to assessment year 2000-01, the respondent had filed a return of income showing a loss of ?3.38 crore, which was later assessed at ?3.19 crore. The issue arose when the respondent claimed ?15.95 lakhs as revenue expenditure on foreign exchange fluctuation, which was disallowed by the Assessing Officer leading to the imposition of a penalty of ?4.91 lakhs under Section 271(1)(c) of the Act.

The Commissioner of Income Tax (Appeals) upheld the penalty, but the Tribunal disagreed. The Tribunal found that it was a mere difference of opinion on the treatment of the loss on foreign exchange fluctuation, and the explanation provided by the respondent was considered reasonable. Citing the decision in CIT Vs. Reliance Petro Products Ltd., the Tribunal allowed the appeal, emphasizing that the rejection of a claim by the Assessing Officer does not automatically warrant a penalty under Section 271(1)(c).

The High Court concurred with the Tribunal's findings, stating that there was no suppression of facts as all income particulars were disclosed during the regular assessment proceedings. Merely disallowing a claim does not justify a penalty, as held in the Reliance Petro Products Ltd. case. Consequently, the High Court dismissed the appeals, concluding that the proposed questions did not raise any substantial legal issues.