2022 (3) TMI 29 - AT - Income Tax

Penalty u/s 271(1)(c) - furnishing inaccurate particulars/concealment of particulars of income levied on the assessee on account of disallowance of Foreign Exchange Fluctuation treating the same as capital in nature - HELD THAT - As is evident from the assessment order, on the first instance when asked to file details of Foreign Exchange Fluctuation, the assessee had surrendered the said amount to taxation. The revenue was not even in the possession of the details of Foreign Exchange Fluctuation and therefore there was no question of any detection by the revenue of concealment of any inaccurate particular of income on this count. We agree with assessee that the impugned foreign exchange fluctuation was surrendered for taxation by the assessee immediately on becoming aware of the fact that it had not done so in the computation of income during assessment proceedings and even before detection by the Revenue The undisputed fact that the assessee had added this Foreign Exchange Fluctuation in its block of assets of plant and machinery and claimed depreciation thereon, which is clearly brought out from the computation of income for the year filed before us, lends credence to the explanation of the assessee that it was left out to be added to its income mistakenly. Having capitalized the amount of foreign exchange fluctuation in the relevant block of assets reveals its clear intent of treating it as capital expense. Not adding it back while computing the income for the year can be safely beleived to be mistakenly done unless otherwise proved. We agree with the assessee that it was mistake on his part for not having added the amount to his income. There is, therefore we hold no case for levy of penalty u/s 271(1)(C) of the Act - Decided in favour of assessee.

Summary

Issues:
1. Appeal against penalty u/s 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2012-13.

Analysis:
The appeal was filed against the penalty order issued by the Commissioner of Income Tax (Appeals) confirming the levy of penalty u/s 271(1)(c) of the Income Tax Act. The appellant raised various grounds challenging the penalty, including errors in law and facts, arguing that the penalty order should be deleted as it was barred by limitation and that the disallowance of foreign exchange fluctuation was an arithmetical mistake and not concealment of facts. During the hearing, the appellant's counsel focused on the merits of the case, leading to the dismissal of certain grounds not pressed and others of a general nature.

The primary issue revolved around the disallowance of foreign exchange fluctuation amounting to &8377; 4,51,186/- treated as capital in nature, leading to the levy of the penalty. The appellant contended that the disallowance was a mistake in computation and that the amount was voluntarily offered for disallowance during assessment proceedings before being detected by the Assessing Officer. The appellant argued that there was no concealment or furnishing of inaccurate particulars of income, emphasizing that the error was rectified suo moto.

The arguments presented highlighted that the appellant had acknowledged the mistake of not capitalizing the foreign exchange fluctuation amount during assessment proceedings and had voluntarily offered the amount for disallowance. The appellant's counsel demonstrated that the error was unintentional, supported by the fact that the appellant had treated the amount as capital expenditure for depreciation purposes. The appellant's proactive approach in rectifying the mistake before detection by the revenue was emphasized to counter the allegation of deliberate concealment or furnishing of inaccurate particulars of income.

In contrast, the Departmental Representative relied on the CIT(A)'s order, emphasizing the non-voluntary nature of the disclosure and asserting that the mistake was not genuine or clerical but deliberate. The CIT(A) upheld the penalty, considering the appellant's explanation insufficient and concluding that it was a clear case of deliberate furnishing of inaccurate particulars of income. The penalty imposed was confirmed, amounting to &8377; 1,53,358/-, representing 100% of the tax sought to be evaded.

The Appellate Tribunal, after considering the contentions of both parties and reviewing the orders of the authorities below, found merit in the appellant's argument. The Tribunal agreed with the appellant's counsel that the failure to add the foreign exchange fluctuation amount to income was an inadvertent mistake rectified by the appellant before detection by the revenue. The Tribunal emphasized the appellant's proactive approach in offering the amount for taxation upon realizing the error, concluding that there was no deliberate concealment or furnishing of inaccurate particulars of income.

Ultimately, the Tribunal held that the penalty levied under section 271(1)(c) was unjustified and directed the deletion of the penalty amounting to &8377; 1,53,358/-. The appeal was partly allowed in favor of the appellant, emphasizing the unintentional nature of the error and the appellant's prompt corrective actions during assessment proceedings.