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TMI Blog2017 (4) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... rest also, the income comes to loss figure leaving further set off for brought forward losses. Therefore, there appears no motive to reduce the tax liability by not showing interest amount. We are, therefore, of the considered view that the penalty is not sustainable in law. Moreover, in the light of the decision of Hon'ble Supreme Court in the case of CIT vs. Reliance petro Products Limited, (2010 (3) TMI 80 - SUPREME COURT ), wherein it was held that merely because the assessee has claimed expenditure, which claim was not accepted or was not found acceptable by the Revenue, penalty u/s 271(1)(c) cannot be attracted. - Decided in favour of assessee - I.T.A. No. 658/Ind/2013 - - - Dated:- 14-3-2017 - SHRI C. M. GARG, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER For The Appellant : Shri Mohd. Javed, DR For The Respondent : Shri C.P.Rawka, C.A. ORDER PER O.P. MEENA, ACCOUTANT MEMEBR This appeal is filed by the Revenue against the order of ld. Commissioner of Income tax (Appeals)-I, Indore,[hereinafter referred to as the CIT(A)] dated 30.08.2013. This appeal pertains to Assessment Year 2005-06 as against appeal decided in respect of assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the AO has apportioned the amount of waiver in the ratio of payment made by the assessee and the figures of principal and interest outstanding as on the date of settlement and worked out the interest component of the amount waived as under :- Ratio of interest in the total outstanding dues ₹ 2,23,18,945/Rs. 3,75,42,837 Interest component in the waived amount [2,23,18,945/3,75,42,837]x 2,54,42,837 = ₹ 1,51,25,582/- 1.1.1 It is seen that no appeal was filed by the assessee before CIT(A) as against the addition of ₹ 1,51,25,582/- made by the AO. 1.1.2 During the course of penalty proceedings, it was explained by the assessee vide letter dated 22.06.2011 that the Bank settled the total dues of ₹ 121 lakhs as against outstanding balances of ₹ 335 lakhs. The said amount includes interest component at ₹ 40 lakhs. However, the AO made the pro-rata bifurcation of the settlement amount for taxation purposes, principal and interest. Considering the Nil tax effect, the assessee did not file any appeal against the reassessment order being pro-rata b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and loss account. Therefore, it would suffice to say that the assessee had not furnished any material evidence to establish that out of the aforesaid amount, a particular portion was principal amount. Further, the assessee itself had considered the entire amount as principal amount by not giving any reason in the details furnished alongwith return. Thus, claiming the entire liability as capital in nature, is not a selfevident fact and incorrect. Hence, the assessee s claim tantamounts to furnishing of inaccurate particulars of income, especially in view of the provisions of Section 41(1) of the Income-tax Act, 1961. As regards the claim of assessee for nonavailability of details of break up of principal and interest from bank, the AO noted that the burden was on the assessee to furnish the requisite information and provide evidence in support of its claim. The AO further noted that as per details available on record, the principal amount of loan taken by the assessee from the Bank was ₹ 1,52,23,892/-) and the amount of remission was ₹ 2,23,18,945/-. From these details, the remission of the quantum of interest was ₹ 70,95,053/- (i.e. ₹ 2,23,18,945/- (-) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef that it was a waiver of principal amount. The ld. CIT(A) noted that no dues certificate issued by SBI dated 08.08.2005 in which Bank has only mentioned that liability of the assessee stands discharged, but the Bank has nowhere mentioned as to whether the payments made by the assessee of ₹ 1.21 crores was adjusted towards loan amount or towards interest amount and hence there is no clarity from such letter as to which amount was waived. Therefore, the ld. CIT(A) was of the view that the pro rata bifurcation of the amount of waiver of ₹ 2.5 crores as done by the AO is only an estimation of component of interest for invoking Section 41(1) of the Act. Hence, such estimation cannot be ground for levy of concealment of penalty u/s 271(1)(c) of the Income-tax Act, 1961. 1.2.1 The ld. CIT(A) further observed that the assessee has relied in the case of CIT, Central-III, Mumbai vs. Adonis Electronics Pvt. Ltd., (2013) 35 taxmnn.com 236 (Mum) and also Tribunal held that the assessee settled the liability of ₹ 26.65 crores of sales tax by paying ₹ 17.65 crores. Therefore, the addition of balance amount of sales tax of ₹ 9.03 crores was correct instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest paid to the Bank on the principal amount as appearing in its accounts. Therefore, the assessee was well aware of the fact that the amount waived, which is more than the principal amount is inclusive of interest. It was also submitted that the assessee had not given any particulars of its income u/s 141(1) neither in the return filed u/s 139 nor in the return in response to Section 148, whereas in the original return filed u/s 139 of the Act, the assessee has claimed payment of interest to Bank. The ld. DR relied on the case of James Finlay Co.Ltd. vs. CIT, (1983) 144 ITR 423 (Cal), wherein it was held that the correspondence between the assessee and with the firm with regard to relevant previous year showed that the assessee has not waived any claim for interest nor was there any agreement for communication between the parties for any settlement of payment of interest in instalment. The Tribunal confirmed the order of penalty. The Hon'ble High Court has held that there was no change in method of accounting in the relevant previous year and no agreement which prevented the accrual of interest. The assessee had offered no legal plausible or possible explanation for not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee at the time of filing of return was because of the fact that they have violated the one time settlement, but it was only after assessment was over that on 29.6.1994 and on 31.03.1995 that the fact about waiver of interest and liquidity damages by the financial institution was known to be incorrect. Therefore, there was bona fide error on the part of the assessee in making the claim whereas in the case of the assessee it was fully known that the amount waived of ₹ 3.23 crores was inclusive of the principal amount of ₹ 1.52 crores. Therefore, atleast the amount of ₹ 70 lakhs was known to the assessee and same was appearing in the books of accounts of the assessee. Therefore, the case is distinguishable on facts and circumstances of the law. In view of this, the ld. DR vehemently contended that the penalty deleted by the ld. CIT(A) deserves to be restored. 1.4. On the other hand, the Ld. Counsel for the assessee contested the issue before the CIT(A) unsuccessfully. The ld. CIT(A) observed that the AO has apportioned the principal and interest component without appreciating that the principal and interest are accounted for separately on other transaction on d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I Limited, (2010) 328 ITR 611 (Del), CIT vs. M.Pachamuthu and another, 295 ITR 502 (Mad). 1.5 We have considered the facts, rival submissions and perused the material available on record. The perusal of the assessment order reveals that the AO has made addition u/s 41(1) by making the apportionment of the amount waived by SBI on the basis of certain formula applied by him. Thus, the AO has made estimated bifurcation of the principal amount that interest component out of total amount of ₹ 2.54 total amount of ₹ 2.54 crores waived off by the Bank. We find from the record as well as audited profit and loss account placed at page 8 of the paper book that the assessee has mentioned the waiver amount of ₹ 2,54,42,838/- in the profit and loss account below mandatory for the year as income related to previous year B-129 . We further find that this fact has also disclosed by the assessee in column h of Schedule-P annexed to the balance sheet, profit and loss account, which is appearing at page 11 of paper book, reads as under :- h) The company has entered into One Time Settlement (OTS) with State Bank of India for a total amount of ₹ 121 lacs against the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. ITO, 175 ITR 120 (Ker), according to which Section 41(1) is only machinery Section and not charging Section. Therefore, the penalty was not leviable on the income assessed under machinery provisions. It is trite law that penalty proceedings are distinct and separate proceedings from the assessment proceedings. The findings recorded in the assessment order is not conclusive for deciding the imposition of penalty. It only has a persuasive value. Any finding recorded in the assessment order does not mean that the penalty has to be imposed automatically. To appreciate the provisions of Section 271(1)(c) in proper perspective, we would like to reproduce the provisions of Section 271(1)(c) as under:- Failure to furnish returns, comply with notices, concealment of income, etc. 271. (1) If the [Assessing] Officer or the [***] [Commissioner (Appeals)] [or the Commissioner] in the course of any proceedings under this Act, is satisfied that any person- (a) [* * *] (b) xxx xxx xxx (c) has concealed the particulars of his income or [* * *] furnished inaccurate particulars of [such income, or] (d) xxx xxx xxx he may direct that such person shall pay by way of penalty,- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d without any bifurcation of interest and principal amount. Therefore, the addition made on the basis of deeming provisions of Section 41(1) of the Act does not attract penalty u/s 271(1)(c) and its case is not covered by Explanation Clause B to Section 271(1)(c) as the assessee has substantiated its explanation that it was bona fide and all the facts relating to the same have been disclosed and as appearing from the profit and loss account and balance sheet. Based on the above facts of the case, it can be held that the assessee has made all the necessary disclosure on a bona fide belief which is not agreeable to the AO, which does not automatically lead to the case for penalty u/s 271(1)(c) of the Act, which is also supported by the decision of Hon'ble Jurisdictional High Court in the case of Naval Singh Sahkari Shakkar Karkhana Mydt. Vs. ACIT, (2015) 25 ITJ 721 (MP), wherein the facts were that the amount of settlement was not known to the assessee at the time of filing of the return of income. Therefore, there was bona fide error on the part of the assessee in making the claim. Similarly, in the case of the assessee, the assessee was not aware regarding the fact that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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