2019 (8) TMI 840 - AT - Income Tax

Penalty u/s. 271(1)(c) - disallowances on the reduction on account of reversal of excess billing, coal cost freight issue and addition of the provision of difference in oil stock - revised return of income filed by the assessee company - HELD THAT - Addition on account of provision for difference in oil stock had been vacated by the CIT(A) while disposing off the quantum appeal of the assessee therefore, the CIT(A) had rightly observed that the issue as regards the levy of penalty under Sec. 271(1)(c) in respect of the said addition does not survive any more. Addition on account of reversal of excess billing as per MERC order we find that as the same had been deleted by the Tribunal while disposing off the quantum appeal of the assessee for the year under consideration viz. Maharashtra State Power Generation Company Ltd. Vs. ACIT, Central -10(1), Mumbai 2017 (3) TMI 1675 - ITAT MUMBAI , therefore, the penalty imposed by the A.O on the said count will have to meet the same fate and thus stands vacated. Penalty in respect of coal cost freight issue-Bhusaval - We find that in the course of the penalty proceedings as well as the appellate proceedings emanating therefrom before the CIT(A), the assessee had satisfactorily explained that the coal cost freight issue - Bhusaval of ₹ 16,31,85,000/- was an expenditure pertaining to the year under consideration. As a matter of fact, the assessee had in its revised return of income claimed the said amount as an expenditure on the basis of the remarks and report of its statutory auditors. In the backdrop of the aforesaid facts, we are of a strong conviction that the aforesaid claim of expenditure raised by the assessee was based on a bonafide and justified grounds. We are also of a strong conviction that as the issue pertaining to coal cost rate Bhusaval was never discussed in the assessment order, therefore, the said fact also supports the claim of the assessee that no penalty u/s 271(1)(c) could have been validly levied in its hands in respect of the said issue. Also, we find that the assessee in the course of the penalty proceedings before the A.O, and also in the course of the appellate proceedings before the CIT(A) had satisfactorily explained that the coal cost freight issue-Bhusaval of ₹ 16,31,85,000/- was an expense allowable u/s 37(1), which for the said reason was claimed as a deduction in its revised return of income on the basis of the audit report - no infirmity in the order of the CIT(A) wherein he had rightly vacated the penalty imposed by the A.O u/s 271(1)(c), we uphold the same. - Decided against revenue

Summary

Issues Involved:
1. Cancellation of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the revised return of income filed by the assessee.
3. Justification for the reversal of excess billing as per MERC order.
4. Disallowance of coal cost freight issue-Bhusaval.
5. Provision for difference in oil stock.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty Imposed under Section 271(1)(c):
The primary issue was whether the CIT(A) erred in cancelling the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The revenue argued that the assessee had understated income and furnished inaccurate particulars. However, the CIT(A) found that the assessee had validly revised its return due to the discovery of omissions and wrong statements in the original return, leading to the cancellation of the penalty.

2. Validity of the Revised Return of Income Filed by the Assessee:
The assessee filed a revised return of income, claiming that the original return was based on unaudited accounts. The A.O. declined to accept this revised return, arguing that a return could only be revised under Section 139(5) on discovering any omission or wrong statement in the original return. The CIT(A) disagreed, concluding that the revised return was valid as it corrected omissions and wrong statements in the original return.

3. Justification for the Reversal of Excess Billing as per MERC Order:
The assessee reversed excess billing of ?320.72 crores in its revised return based on an order by the Maharashtra Electricity Regulatory Commission (MERC). The CIT(A) observed that the reversal was in conformity with the MERC order and thus concluded that no inaccurate particulars of income were furnished by the assessee. The Tribunal upheld this view, noting that the issue was debatable and the assessee's explanation was bona fide and reasonable.

4. Disallowance of Coal Cost Freight Issue-Bhusaval:
The A.O. made an addition of ?16,31,85,000/- related to coal cost freight issue-Bhusaval, which the assessee did not contest in its quantum appeal before the Tribunal. The CIT(A) found that the assessee had satisfactorily explained that this expenditure was incurred in the year under consideration and was based on the statutory auditors' report. The Tribunal agreed with the CIT(A), noting that the assessee's claim was bona fide and justified, and that the full disclosure of particulars was made in the revised return of income.

5. Provision for Difference in Oil Stock:
The A.O. added ?20.04 lacs for the difference in oil stock, which was later deleted by the CIT(A) in the quantum appeal. The CIT(A) observed that the physical inventory of oil stock was carried out in September and October 2005, making the provision allowable. The Tribunal upheld this view, noting that the penalty on this count did not survive as the addition was deleted.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order which cancelled the penalty imposed under Section 271(1)(c). The Tribunal found that the assessee had made bona fide claims and provided full disclosure of particulars in its revised return, and that the issues were debatable and justified based on the statutory auditors' report. The Tribunal emphasized that penalty proceedings are separate from assessment proceedings, and mere disallowance of claims does not justify imposing penalties.