Steelfab Building System Vs ACIT (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, in Steelfab Building System Vs ACIT, allowed the assessee’s appeal and directed deletion of a penalty of Rs.3,03,756 levied under Section 271(1)(c) of the Income Tax Act, 1961, in connection with interest income of Rs.4,91,513 received on income-tax refunds under Section 244A. The Tribunal held that a difference in the timing of disclosure and taxation of income, where the assessee had offered the same interest income to tax in the succeeding assessment year and explained the reasons for the accounting treatment, could not automatically constitute concealment of income or furnishing of inaccurate particulars. The decision was pronounced on 4 March 2020 by a Bench comprising Shri Vikas Awasthy, Judicial Member, and Shri G. Manjunatha, Accountant Member.
The controversy concerned Assessment Year 2012-13, for which the assessee declared total income of Rs.38,14,887. The Assessing Officer completed the assessment under Section 143(3) on 24 March 2015, determining income at Rs.43,06,401 after adding Rs.4,91,513 as income from other sources. The addition represented interest received on income-tax refunds under Section 244A, which had not been separately included in the income declared for the relevant assessment year. Following the addition, the Assessing Officer initiated penalty proceedings under Section 271(1)(c), alleging that the assessee had furnished inaccurate particulars of income.
The assessee explained that the interest component of the income-tax refund had inadvertently been accounted for under the Income Tax Account rather than being separately credited to the Profit and Loss Account. According to the assessee, the refund advice did not separately disclose the amount attributable to tax refund and interest, and the accountant had consequently included the interest component within the total refund figure. The assessee further explained that its practice was to account for receipts and payments relating to government dues, including income tax, VAT and excise, in the year of receipt or payment. It maintained that there was no deliberate concealment because the interest income had actually been offered to tax in Assessment Year 2013-14.
The Assessing Officer rejected the explanation. He held that the assessee had failed to disclose the interest income in the relevant assessment year despite having received or become entitled to the refund. Treating the omission as deliberate concealment or furnishing of inaccurate particulars, the Assessing Officer imposed a penalty of Rs.3,03,756, equivalent to 200% of the tax sought to be evaded. The assessee challenged the penalty before the Commissioner of Income Tax (Appeals)-42, Mumbai, arguing that the subsequent taxation of the same income showed the absence of any intention to evade tax.
The CIT(A), however, confirmed the penalty by order dated 13 July 2018. The appellate authority relied, among other authorities, upon the Delhi High Court’s decision in CIT Vs Zoom Communication Pvt. Ltd., (2010) 327 ITR 510, and observed that the assessee had not satisfactorily explained why interest on an income-tax refund was accounted for on a receipt basis despite following the mercantile system of accounting. The CIT(A) considered the details of the refunds available to the assessee and upheld the Assessing Officer’s conclusion that the failure to account for the interest in the relevant year justified penal action.
Before the Tribunal, the assessee reiterated that the interest had been offered to tax in Assessment Year 2013-14, when the refund was credited to its account. It submitted that information regarding the refund interest was available in Form 26AS and that the Income Tax Department itself had generated the refund details. The assessee contended that these circumstances were inconsistent with an intention to conceal income. It also explained that the refund advice had not provided a clear bifurcation between refund of taxes and interest, while a substantial part of the relevant refund adjustment became known to it during the subsequent financial year. In support, the assessee relied upon the Punjab and Haryana High Court’s decision in CIT Vs SSP Pvt. Ltd., 302 ITR 43.
The Revenue defended the penalty and contended that non-disclosure of the refund interest in the appropriate assessment year constituted deliberate concealment. It maintained that the Assessing Officer and CIT(A) had correctly applied Section 271(1)(c), notwithstanding the assessee’s subsequent inclusion of the interest income in its return for Assessment Year 2013-14.
The ITAT examined the circumstances surrounding the refunds and their accounting treatment. The Tribunal noted that the refund for Assessment Year 2009-10 had been encashed on 24 December 2011 but adjusted against the refund voucher relating to Assessment Year 2007-08 dated 30 March 2012. The relevant information concerning that adjustment became available to the assessee on 23 May 2012. The Tribunal also recorded that the refund relating to Assessment Year 2010-11 had been directly encashed on 5 April 2011. It accepted that the assessee had not separately accounted for the disputed interest amount during Assessment Year 2012-13 because of the circumstances relating to the refund vouchers and the absence of specific information regarding the interest component.
A material factor in the Tribunal’s reasoning was that the interest income of Rs.4,91,513 had been offered to tax in Assessment Year 2013-14 and that the lower authorities had not disputed this fact. The Tribunal observed that the penalty had been imposed essentially because the assessee followed the mercantile system of accounting but had recognised the interest in a later year. In the Tribunal’s view, once the income had been disclosed and subjected to tax in the subsequent assessment year, and the assessee had supplied an explanation for not recognising it earlier, the mere timing difference did not establish the ingredients of Section 271(1)(c).
The Tribunal distinguished the question of the appropriate year of taxation from the separate issue of whether the assessee had concealed income or furnished inaccurate particulars. It reasoned that the difference in timing of recognition could not, on the facts presented, be equated with a deliberate attempt to evade tax. The case therefore concerned a bona fide accounting explanation and subsequent disclosure rather than a demonstrated concealment of taxable receipts. This approach is consistent with the broader judicial principle that penalties require examination of the facts and explanations of the taxpayer and cannot necessarily follow every assessment addition. Relevant TaxGuru discussions of this principle include penalty for genuine mistakes in reporting income-tax refund interest and penalty in cases involving bona fide explanations.
Accordingly, the ITAT held that the Assessing Officer and CIT(A) had erred in sustaining penalty under Section 271(1)(c) in relation to interest on the income-tax refund. It directed the Assessing Officer to delete the penalty of Rs.3,03,756 and allowed the assessee’s appeal. The decision establishes that a timing difference in offering interest income to tax, supported by an explanation and undisputed subsequent disclosure, does not by itself amount to concealment of income or furnishing inaccurate particulars. The ruling is fact-specific and does not determine that taxpayers may freely choose the year of taxation of refund interest irrespective of their applicable accounting method.
Cases Discussed
1. CIT Vs SSP Pvt. Ltd. — (2008) 302 ITR 43 (Punjab and Haryana High Court). Relied upon by the assessee. The assessee cited this decision while contesting penalty under Section 271(1)(c) and explaining that the interest income had been offered in the succeeding assessment year. The Tribunal recorded the reliance but did not separately reproduce or analyse the ratio of the judgment.
2. CIT Vs Zoom Communication Pvt. Ltd. — (2010) 327 ITR 510 (Delhi High Court). Relied upon by CIT(A). The CIT(A) referred to this judgment while confirming the penalty on the ground that the assessee had not adequately justified accounting for refund interest on a receipt basis despite following the mercantile system. The Tribunal ultimately deleted the penalty based on the specific explanation and undisputed subsequent taxation of the income. Related discussion: Penalty where an assessee fails to furnish complete facts.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal filed by the assessee is directed against order of the ld. Commissioner of Income Tax (Appeals)-42, Mumbai, dated 13/07/2018 and it pertains to the A.Y 2012-13.
2. The assessee has raised the following grounds of appeal:-
Grounds of Appeal No.1
The Commissioner of Income Tax (Appeals) – 42 hereinafter referred to as the CIT erred in confirming the penalty of Rs.3,03,756/– imposed by the Assessing Officer under the provisions of Section 271 (1)(c) of the Income Tax Act, 1961.
Your Appellant submits that they have received interest of Rs. 491,513/- on the Income Tax refund U/S 244A and the accountant of the Firm credited the same in the books of account to Income Tax Account and since the amount of interest was not appearing separately it was clubbed in the Income Tax Refund figure and therefore by mistake was credited to the Income Tax account and thus left out to be credited to Profit and Loss Account and thus left to be clubbed in taxable income.
Further the actual Income tax refund together with Interest was received in the subsequent Assessment Year 2013-14 and the same amount was credited To Interest Income and added to taxable income and your Appellant has paid the tax on this Interest amount.
Your Appellant further submits that the refund or Payment of Government dues like Income Tax, VAT, excise was accounted in the year of receipt or payment of demand.
Under the given circumstances there is no concealment of Income nor there has been any filing of inaccurate particulars of Income and therefore the issue does not fall within the mischief of the provisions of section 271(1)(c) of the Income Tax Act, 1961 and therefore the Assessing Officer be directed to delete the penalty.
Grounds of Appeal No. 2
Your Appellants further submits that the addition of Interest in the A.Y. 2012-13 and the same amount of Income has been offered in the subsequent Year A.Y. 2013-14 amounts to double addition and therefore it is against the provisions of Income Tax as the same income cannot be taxed twice and as the same can either be taxed on either of the years but not both and therefore the Assessing Officer be directed to delete the penalty.
As regards the double addition the Assessee is taking up the matter in rectification with the A.O
3. The brief facts of the case are that the assessment for the impugned assessment year has been completed u/s 143(3) of the I.T.Act, 1961 on 24/03/2015, determining the total income at Rs.43,06,401/-, as against the total income declared for Rs.38,14,887/-. The Ld. AO has determined total income of Rs.43,06,401/- by making additions towards income from other sources being interest received on income tax refund u/s 244A amounting to Rs. 4,91,513/-. Thereafter, penalty proceedings u/s 271(1)(c) of the I.T.Act, 1961 was initiated for furnishing inaccurate particulars of income. During the course of penalty proceedings, the assesee vide letter dated 14/08/2015 has filed detailed submissions and argued that it is has neither concealed particulars of income, nor furnished inaccurate particulars of income, which warrants levy of concealment penalty u/s 271(1)(c) of the I.T.Act, 1961. The Ld. AO did not convince with arguments of the assessee and by taking note of various facts, including by following certain judicial precedents, opined that the assessee has deliberately concealed particulars of income by not disclosing interest received on income tax refund, even though it has received interest on income tax refund during the relevant period and accordingly, levied penalty of Rs.3,03,756/-, which is equivalent to 200% of tax sought to be evaded.
4. Aggrieved by the penalty order, the assesee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee contended that the Ld. AO was erred in levying penalty u/s 271(1)(c) of the I.T.Act, 1961, in respect of additions made towards interest received on income tax refund, without appreciating the fact that although, the department has generated income tax refund, but the amount of refund has been received by the assesee during AY 2013-14 and the same has been offered to tax. The Ld.CIT(A) after considering the relevant submissions of the assessee and also by relied upon various judicial precedents, including the decision of Hon’ble Delhi High Court, in the case of CIT vs Zoom Communication Pvt.Ltd (2010) 327 ITR 510, confirmed penalty levied by the Ld. AO u/s 271(1)(c) of the I.T.Act, 1961, on the ground that the assesee has failed to explain the accounting of interest on refund on receipt basis, when the details of refund issued were available to it and when, it was following mercantile system of accounting. Aggrieved by the Ld.CIT(A) order, the assessee is in appeal before us.
5. The Ld. AR for the assesee submitted that the Ld.CIT(A) has erred in confirming penalty levied by the Ld. AO u/s 271(1)(c) of the I.T.Act, 1961,without appreciating the fact that the assessee has offered interest received of income tax refund u/s 244A of the Act, in the subsequent AY 2013-14, when the actual refund was credited to the account of the assessee. The Ld. AR, further submitted that the Ld. AO, as well as the Ld.CIT(A) were erred in coming to the conclusion that the assesse has made deliberate attempt to evade tax on interest income, ignoring the fact that interest on income tax refund was very much available with the department in Form No. 26AS and there is no possibility of non disclosure of said interest income for taxation. The assessee has not offered interest income for the year under consideration, because the major portion of interest was credited to assessee account in subsequent financial year and also fact that when, refund advise was issued to the assessee, there is no breakup, in respect of refund of taxes and interest. In this regard, he relied upon by the decision of Hon’ble Punjab & Haryana High court, in the case of CIT vs SSP Pvt.Ltd. 302 ITR 43
6. The Ld. DR, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that the assesee has deliberately concealed particulars of income, in respect of interest received on income tax refund and hence, the Ld. AO, as well as the Ld.CIT(A) were right in levying penalty u/s 271(1)(c) of the I.T.Act, 1961
7. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The fact with regard to receipt of interest on income tax refund u/s 244A of the Act, 1961 was not disputed by the assesee. But, the dispute is only with regard to timing of receipt of interest income and taxability of such interest in the year under consideration. Although, the refund for AY 2009-10 was encashed on 24/12/2011,but the same has been adjusted to refund voucher issued for AY 2007-08, dated 30/03/2012. Insofar as, refund issued for AY 2010-11, the same has been directly enchased by the assesee on 05/04/2011. The assesee has not offered interest on income tax refund amounting to Rs.4,91,513/- for the impugned Assessment Year, because it was not having specific details with regard to interest received on income tax refund, although the refund vouchers was generated by the department. Further, refund generated for AY 2009-10 was adjusted to tax payable for AY 2007-08 and was finally refund was issued on 30/03/2012. This information was available to the assesee on 23/05/2012. Therefore, the assesse claimed that it has not considered interest income for the impugned assessment year, however fact remains that said interest income has been offered to tax for the AY 2013-14 and this fact has not been disputed by the lower authorities. But, the Ld. AO has levied penalty only on the ground that although, the assesee is following mercantile system of accounting, it has not offered interest income for tax for the year under consideration. Otherwise, there is no dispute with regard to the fact that said interest income has been offered to tax in subsequent financial year. Therefore, we are of the considered view that once, the fact with regard to taxability of interest income in AY 2013-14 was not disputed by the Ld. AO, then he is erred in levying penalty u/s 271(1)(c) of the Act, 1961 for not offering interest income to tax for the year under consideration, more particularly when, the assessee has explained the reasons for not accounting and considering interest income to tax for the year under consideration. When, the assessee has offered to tax interest income in subsequent financial year, there is no reason for the Ld. AO to levy penalty on the same income for the year under consideration for not offering to tax said income, because the timing difference in offering income to taxes cannot be considered as concealment of particulars of income or furnishing inaccurate particulars of income. Therefore, we are of the considered view that the Ld. AO, as well as the Ld.CIT(A) were erred in levying penalty u/s 271(1)(c) of the I.T.Act, 1961 in respect of additions towards interest on income tax refund. Hence, we direct the Ld. AO to delete penalty levied u/s 271(1)(c) of the I.T.Act, 1961.
8. In the result, appeal filed by the assesee is allowed.
Order pronounced in the open court on this 04 /03/2020
