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TMI Blog2018 (6) TMI 749X X X X Extracts X X X X X X X X Extracts X X X X ..... on assessment proceedings - till the time of instruction, there were several cases where it has been allowed as deduction as accrued allowability and not as contingent allowability - thus where there are possible two views possible on an issue, penalty thereon cannot be levied - hence we not find any infirmity in the order of the ld CIT(A) in deleting the penalty u/s 271(1)(c) of the Act - appeal of the revenue is dismissed. - ITA No. 6458/Del/2015 - - - Dated:- 13-6-2018 - SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Revenue : Shri Sajnit Singh, CIT DR For The Assessee : Shri Ved Jain, CA ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the revenue against the order of the ld CIT(A)- 6, New Delhi dated 15/09/2015 for the Assessment Year 2009-10. The ld CIT(A) has deleted the penalty u/s 271(1)(c) of the Income Tax Act, 1961 levied by the ld AO vide order dated 24.12.2014. Subsequently, rectified u/s 154 of the Act 21.08.2015. According to the rectified order u/s 154 the total penalty was revised to ₹ 18,59,95,055/- against the original penalty levied at ₹ 1,86,50,956/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal loss on foreign exchange at ₹ 18.28 crores claimed by the assessee on actual basis, 154 proceedings the ld AO himself stated that it is allowable in Assessment Year 2008-09 and not in Assessment Year 2009-10. Therefore, in that disallowance only dispute is with respect to year in which it is allowable as deduction. The third issue is with respect to disallowance of loss on account of mark to market transaction. The above transaction related to hedging contract on account foreign exchange fluctuation. The ld AO for disallowance complied the CBDT instruction dated 23.03.2010 which was not available at the time of filing of return of income. Therefore, on these three addition which the ld AO levied the penalty. The ld CIT(A) deleted the same. 5. The ld DR relied upon the orders of the ld AO wherein, the ld AR submitted a written submission which is as under:- 1. This is revenue‟s appeal filed against the order passed by Ld. CIT(A) in which the penalty amounting to ₹ 18,59,95,055/- levied by the AO on the following additions amounting to ₹ 54,72,05,227/- made by the AO was deleted. (i) Addition on account of ₹ 8,52,79,100/- Encashment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt year by the AO, there is no scope of concealment of income also. Thus it is clear from the above facts, that AO himself belief that such loss claimed by the assessee is allowable and the only issue is the year of allowability of such loss after the issuance of instruction and thus the penalty should not be leviable. 4. Third issue is regarding the disallowance of notional loss of foreign exchange amounting to ₹ 18,28,47,127/- claimed by the assessee on actual basis treating the same to be pertaining to the previous year. During the AY 2008-09, assessee company has incurred a foreign currency loss of ₹ 18,28,47,127/- and the same loss being notional in nature was added by the assessee while filing its return of income for the AY 2008-09 (PB Pg 41). The assessee claim the same in AY 2009-10. However, Ld. AO in the impugned assessment year AY 2009-10 has disallowed the claim treating the same pertaining to preceeding year. Thereafter, assessee moved the application for rectification u/s 154 of the Act before the AO to allow the claim in AY 2008-09 since Id. AO himself held that the same pertains to AY 2008-09 and not allowable in AY 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi) (Mag.) 6. Moreover, the notice issued u/s 271 r.w.s. 274 does not specify the limb under which the penalty was levied. In this regard, it is submitted that it is a well settled law, the AO, while issuing notice u/s 274 read with section 271 of the Act, has to mention as to under which limb of the Act he is levying penalty on the assessee whether for concealment or furnishing of inaccurate particulars. Therefore, entire penalty proceedings stand vitiated if the notice itself is not in accordance with law. Reliance in this regard is placed on the judgment of Hon‟ble Karnataka High Court in the case of CIT Ors. vs. M/s Manjunatha Cotton and Ginning Factory Ors. [2013] 359 ITR 565, wherein the Hon‟ble Court has held as under: 50. A reading of Section clearly indicates that the assessment order should contain a direction for initiation of penalty proceedings. The meaning of the word direction is of importance. Merely saying that penalty proceedings are being initiated will not satisfy the requirement. The direction to initiate proceedings should be clear and not be ambiguous. It is well settled law that fiscal statutes are to be construed strictly and mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the assessee needs to be quashed in the absence of any valid initiation itself. 6. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The ld CIT(A) has dealt with this penalty order of the ld AO as under:- The appeal has been filed against the assessment order passed by the Assistant Commissioner ol Income Tax. Range - 6, New Delhi under section 271(1 )(c) of the income Tax Act. 1961 for the assessment year 2009-10. The return of income was filed on 29-09-2009 declaring total income of ₹ 363,13.42.690/-. The case was selected for scrutiny and the Id. AO made following disallowances as per the Assessment Order: a. Disallowance on account of Contingent Liability amounting to ₹ 8,52,79.100/'-. b. Disallowance on account of Mark to Market transactions amounting to ₹ 27,90,59,000/- c. Disallowance of Loss amounting to ₹ 18,28,67,127/- 3. a) Aggrieved appellant filed appeal before the CIT(A). The Id. CIT(A) vide order dated 18.02.2014 in appeal no. 131/11-12 confirmed the addition at SI. No. 1 by holding as under (PB Page No. 226):- The main issue in this case is whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by other grounds of appeal. Hence not separately adjudicated upon. Grounds Nos. 6, 7, 8 9 postulate the general objection of the assessee as to whether addition itself is tenable in law, whether there is concealment of income or furnishing of inaccurate particulars and whether penalty proceedings are independent proceedings. These issues / grounds are adjudicated separately with reference to penalty on each addition. Ground No.3 relates to penalty u/s. 271(1)( c ) on the addition of 8.53 crores relating to encashment of bank guarantee. Furnishing of bank guarantee by assessee in favour of IOCL w.r.t contract for supply of seamless pipes The assessee is a manufacturer of Seamless and ERW pipes. Indian Oil Corporation Ltd (Hereinafter referred to as IOCL ) floated a tender no. PLM/CHBPL/07/14 for purchase of ERW Pipes. MSL in its normal course of business participated in the above tender with a view to supply pipes, get turnover consequently earn profits. The above said tender was allotted to MSL and subsequently Letter of Intent, dated 09.04.2008 along with Purchase order, dated 22.04.2008 was issued to MSL. As per the terms of the above agreement (Clause 4.19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the quality parameters for the bare pipes nor in a position to meet the delivery schedule. 4. Thereafter IOCL Proceeded to procure goods from some other alternative source. Since the price of goods had gone up by then, IOCL raised a claim on MSL vide letter dated 29.09.2008for the difference in price amounting to ₹ 17,98,48,064/- 5. It is important to note that the assessee did not accept the claim of ₹ 17,98,48,064/- by IOCL and filed a claim before the arbitrator to the tune of ₹ 2,04,09,02,954/- in respect of various damages suffered by the assessee, which included a claim for loss and damages on account of the unlawful encashment of Bank Guarantees of ₹ 8,52,79,100/- and Claim for loss and damages towards interest and commission charges towards the bank guarantees of ₹ 4,79,09, 798/- 6. Subsequently IOCL issued letter dated 01.12.2008 to the bankers of the assessee company for encashment of bank guarantee of ₹ 8,52, 79,100/- in part consideration of the above said claim. The bankers of the assessee paid the amount of bank guarantee to IOCL. 7. The assessee treated the total claim of IOCL of ₹ 17,98,48,064/- as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract. That contingency had happened and the liability, therefore, became a liability in present. The liability also could not be said to be unascertained because the exact amount of the claim and Bank Guarantee which was encashed was known and fixed. The fact that the assessee contested his liability will not alter the legal position at all. Once the liability or a loss accrues and is ascertained or is ascertainable, it becomes an allowable deduction at that point of time. It is significant to note that the assessee's attempt is just a preventive one for balance claim payable. The balance claim since has not been provided by the assessee and accordingly disclosed in the notes to accounts. Furthermore the legal opinion sought by the company on the issue categorically says that the recoverability of the amount of Bank guarantee encashed by IOCL is negative and accordingly the company has booked the same as expense in its books of accounts. (A copy of the same is enclosed for your kind perusal). It is further more important to mention that the liability of ₹ 8.53 crores has been paid by the appellant under a contract and thus the same is definitely an allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of Foreign exchange fluctuation (Net) as is evident from Schedule No. 13, Other Income of annual accounts of the assessee. In computing this amount, Marked-to-market loss amounting to ₹ 27,90,59,000/- on contracts that have not matured (open contracts) was adjusted. Assessee‟s submission regarding justification of the claim Assessee submitted that this claim is as per AS-11 issued by the Institute of Chartered Accountants of India. The claim is also in line with the judgment of the Hon'ble Special Bench in the case of DC1T vs. Bank of Baharain Kuwait (2010) 5 ITR 301 in ITA No. 4404 1883/Munt/2004 on identical issue. In Para 47 of the judgment the Hon'ble 1TAT has held as under :- 47. Now, we will consider the issue with reference to Accounting Standard -II (AS-11). The Hon‟ble Supreme Court in the case of Chellapali Sugar Mills, 98 ITR 167 and in the case of Woodward Governor of India P. Ltd (supra) observed that the accounting standards issued by the Institute of Chartered Accountants of India required that accounting policies must be governed by the principle of prudence. Accounting Standards are prepared b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the contract on the last date of the accounting period i.e. before the date of maturity of the forward contract. The AO has disallowed the amount in view of CBDT Instruction No. 03/2010, dated 23-3-2010 by stating on Page 20/22 as under In view of the categorical Instructions of the CBDT on allowability of Marked-to- Market expenses, the claim of ₹ 27,90,59,000/- on account of Marked-to-Market expenses is disallowed and added back to the income of the assessee. The AO disallowed the same stating that the loss would be allowed on actual settlement / conclusion of the contract. The assessee contention that the board circular is dated 23.03.2010 and is not applicable for assessment year 2009-10, was not accepted by the AO stating that the board instruction is clarificatory in nature and applies to all pending proceedings and further stated that this instruction was not referred to by the special bench of ITAT in the case of Bank of Bahirin and Kuwait. Latest status regarding this disallowance. The AO has allowed this amount as deduction in subsequent A. Y. 2010- 11. Ground No. 5 - Disallowance of ₹ 18,28,67,127/- on of For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent assessment year i.e. AY 2010-11. Penalty relating to loss of 18.26 crores on account of foreign currency transaction. The dispute between the department and the appellant is that whether it is allowable in this assessment year or in the earlier assessment year . This amount though disallowed by the AO in the present assessment year, has been allowed, by the AO in the earlier assessment year i.e. AY 2008-09. Concealment of income / furnishing inaccurate particulars of income 3.3 Having examined the factual aspects relating to the imposition of penalty, it is now examined whether the impugned addition/disallowance made in the Assessment order in the case of the appellant attracts penal provisions u/s. 271(1 )(c) of the I.T. Act. The scheme of sec. 271(1 )(c) visualizes imposition of penalty when the assessee has concealed income or when the assessee has furnished inaccurate particulars of income. (A) The expression concealment of income‟ has not been defined in the Act, but the natural meaning of the expression concealment‟ is to keep from being seen, found, observed, or discovered‟. It would, therefore, follow that the expression co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that these are only claims made by the assessee for the current assessment year, whether they are acceptable to the revenue to be allowed or not. The AO in the penality order considered these claims as concealment of income, which is blatantly wrong. A claim if not accepted cannot take the charater of concealment. A claim can at best be considered as furnishing of inaccurate particulars, if it is proved as or false claim and if made with malafide intention. In order to establish that this was an incorrect claim, some concrete evidences have to be brought on record by the AO. The penalty cannot be imposed on presumptions and without concrete factual evidences. The disclosure in the return of income have been made by the appellant of all particulars necessary to compute income and the controversy has arisen only due to difference of opinion between the appellant and the AO. Out of the three disallowances, two of them have been allowed by the AO himself in other assessment years. In all the three cases, the department never disputed whether the expenditure was incurred or not. It was only disputing the propriety of claiming the expenditure in this assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 27l(l)(c) . A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. 349 ITR 112 (Del)- KARAN RAGHAV EXPORTS P. LTD. Disallowance of debatable claims - no penalty However, a distinction must be drawn betM‟een a false claim, which cannot be countenanced and claims which are made on the basis of legal provisions which are debatable and quite plausible. When a legal issue arises for consideration, which is debatable but the claim made by the assessee is not accepted, there is no justification to invoke the penalty provisions u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made in the return of income, which was not accepted by the Tax Authorities or Appellate Authorities. I am, therefore, of the considered view that the case of the appellant cannot be said to be a case of concealing particulars of income or furnishing inaccurate particulars of income . 7. On carefully consideration of the order of the ld CIT(A) and submission of the parties, it is apparent that penalty on the bank guarantee of ₹ 85279100/- encashed and claimed as deduction is already allowed by the coordinate bench, hence, addition itself is deleted. Therefore, on this sum penalty u/s 271(1)(c) cannot survive. 8. With respect to the disallowance of loss on foreign exchange of ₹ 18.28 crores. The only dispute is with respect to Assessment Year in which such loss is allowable. The claim of the assessee u/s 154 of the Act is that the same is allowable in Assessment Year 2008-09 and same is accepted by the ld AO the only dispute is that in which year same is allowable. The assessee originally claimed that in Assessment Year 2009-10 the ld AO allowed it u/s 154 of the Act for Assessment Year 2008-09. Therefore, it cannot be said that the assessee was not under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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