2019 (9) TMI 1126 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - inappropriate limb in the notice in the penalty was not struck off - HELD THAT - CIT-A has duly noted the assessee s submission in his order. However while adjudicating the issue he has omitted to adjudicate this ground raised before him. Hence in our considered opinion the interest of justice requires that this issue should be remitted to the file of learned CIT-A. CIT-A is directed to consider the issue afresh after giving the assessee proper opportunity of being heard. CIT-A should also take into account the various case laws on the subject as available and as canvassed by the assessee as aforesaid. The learned CIT-A should also take into account the decision of honourable of apex court in the case of CIT Vs. S.V. Angidi Chettiar 1962 (1) TMI 10 - SUPREME COURT . Accordingly this issue raised is remitted to the file of learned CIT-A with directions as above. Satisfaction not recorded by AO at the time of initiation of penalty - Assessee doesn t deserve to succeed on this ground. The assessing officer has after disallowance of the impugned amount duly noted in the assessment order that penalty proceedings u/s. 271(1)(c) of the Act is initiated . Consequent to amendment in section 271 by insertion of section 271(1B) duly applicable in the extant assessment year this is sufficient satisfaction and the penalty cannot be annulled on the ground of lack of satisfaction by the assessing officer. Penalty may not be levied on bonafide and inadvertent error of the assessee - In our considered opinion showing a huge amount of foreign currency translation loss on capital account by a multinational company as revenue loss can by no stretch of imagination be considered to be a bonafide - assessee was very well aware that it was deliberately showing capital account transaction loss as loss on revenue account. Hence by no stretch of imagination it can be said that there was any inadvertent error. It was fully considered decision of the assessee to show the capital loss as revenue loss. Hence this limb of the argument is dismissed and inadvertent error. Assessee voluntarily disclosed during the course of assessment proceedings - by no stretch of imagination it can be said that there was any involuntary disclosure by the assessee. The assessing officer has duly detected the huge amount of capital transaction loss. He had asked the assessee the detail thereof in these circumstances assessee had no option but to disclose the same. By no stretch of imagination it can be said to be voluntarily disclosure. The decision of the apex court in the case of K.P.Madhusudanan fully applies on the facts of the case. Hence this ground raised by the assessee stands dismissed. As relied upon the tax auditor s report - We find that the tax audit is conducted on the basis of information and explanation of the assessee. The assessee a multinational company cannot put the blame on tax auditor when the tax auditor is not present to defend. It is not the case that there is acceptance on record by the tax auditor that he is guilty of any mistake. Hence this plea of the assessee is not acceptable. Asessee s appeal is partly allowed for statistical purposes

Summary

Issues:
1. Validity of penalty under section 271(1)(c) for foreign exchange fluctuation loss.
2. Whether the penalty was initiated for furnishing inaccurate particulars of income or for concealment of income.
3. Specific mention in the notice under section 274 of the Act regarding the penalty initiation.
4. Consideration of foreign exchange fluctuation loss during assessment proceedings.
5. Disclosure of disallowed expense during assessment proceedings.

Analysis:

Issue 1: Validity of Penalty under Section 271(1)(c)
The Assessing Officer disallowed a foreign exchange fluctuation loss of a significant amount pertaining to capital assets, which was not added to the total income and thus disallowed under section 37 of the Income Tax Act, 1961. Penalty proceedings under section 271(1)(c) were initiated based on this disallowance. The assessee argued that the loss was inadvertently claimed and was not deliberate concealment. However, the Assessing Officer held that the loss should have been treated as a capital transaction and not a revenue loss, citing relevant case laws. The CIT(A) upheld this decision, leading to the appeal before the ITAT.

Issue 2: Nature of Penalty Initiation
The assessee contended that the penalty notice did not specify whether it was initiated for furnishing inaccurate particulars of income or for concealment of income, as required under section 274 of the Act. The Assessing Officer, however, was satisfied that there was deliberate intention on the part of the assessee to conceal income, based on the treatment of the foreign exchange loss as a revenue loss.

Issue 3: Specific Mention in the Penalty Notice
The assessee argued that since the penalty notice did not specifically mention whether it was for furnishing inaccurate particulars of income or for concealment of income, the penalty should be quashed. However, the ITAT found that the notice, coupled with the assessment order, provided sufficient grounds for the initiation of penalty proceedings.

Issue 4: Assessment Proceedings
During the assessment proceedings, the assessee voluntarily disclosed the disallowed expense of foreign exchange fluctuation loss. The Assessing Officer inquired about the details of this loss, leading to the assessee offering it for tax. The ITAT noted that the disclosure during assessment proceedings did not absolve the assessee of deliberate concealment.

Issue 5: Disclosure during Assessment
The assessee argued that the disclosure during assessment proceedings should prevent the imposition of a penalty. However, the ITAT found that the disclosure was not voluntary, as it was prompted by the Assessing Officer's inquiry into the significant foreign exchange loss claimed by the assessee.

In conclusion, the ITAT partly allowed the appeal for statistical purposes, remitting certain issues back to the CIT(A) for further consideration. The judgment emphasized the importance of proper satisfaction by the Assessing Officer for penalty initiation and the distinction between capital and revenue transactions in determining tax liabilities.