Revised return with same info is furnishing of inaccurate particulars

Brief of the case:

The ITAT Chennai in the case of DCIT vs. M/s. Rattha Citadines held that relying on the same information as available on the date of filing original return of income in filling revised return but making a different claim , in the absence of assessee’s bonafide expenditure would be deemed as furnishing of inaccurate particulars of income making assessee liable to face penalty u/s 271(1)(c).

Facts of the case:

• The assessee filed the return of income on 14-10-2010 declaring Nil income which was revised subsequently on 18-03-2011 declaring a loss of Rs. 1,23,51,488/- after adjusting the notional income of C4,76,517/- computed on account of restatement of foreign currency loan liability. During the course of assessment the said loss claim made in the revised return was disallowed by the AO and assessed the income of Rs. 4,76,517/-.

• AO relied upon the order of the Hon’ble Apex Court in the case of Tuticorin Alkali & Chemicals Fertilizers Limited vs. CIT reported and arrived at the said conclusion on the reason that the assessee has not commenced any business activity during the year under consideration.
• AO also initiated penalty proceedings under Section 274 read with Section 271(1)(c) and after getting response of the assessee levied penalty of Rs. 39,63,854/- which was 100% of the tax sought to be evaded on the expenditure claimed by the assessee in the revised return.
• CIT(A) placing reliance on the order of the Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd 322 ITR 158 (SC), deleted the penalty. Aggrieved by the said order , revenue is in appeal before ITAT.

Contention of the Assessee:

• It was submitted that the expenditure claimed by the Assessee was disallowed only on account of difference of opinion between the Assessee and the Assessing Officer. The assessee had did not furnish inaccurate particulars in the return of income.
• Merely because the assessee had claimed the expenditure, which claim was not accepted that by itself would not attract penalty under Section 271(1)(c) of the Act.
• The disallowance made by the AO holding that assessee has not commenced its business operations holds good in assessing the income of the assessee but not for levy of penalty under section 271(1)(c) of the Act.
• It is because findings in assessment proceedings are not conclusive in penalty proceedings. In this respect assessee relied on the decision of Hon’ble Supreme Court in the case of Ananthraman Veerasinghaiah & Co. vs. CIT 123 ITR 457 wherein the court held that the findings in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings.

Contention of the Revenue:

• It was submitted that the original return of income has been filed by the assessee within the time allowed due date for filing return of income under section 139(1) of the Act. By that time, the accounts have been finalized and audit of the accounts was also over. Therefore, there could be no change in the facts and figures, be it the profit and loss account, the balance sheet or the audit report or the Director’s report.
• Therefore, at the time of filing of original return of income, the assessee was fully aware of the correctness and completeness of the information furnished in the return of income. The assessee chose to file a revised return of income based on the same set of facts and figures, profit and loss account and the balance sheet as declared in the original return of income, but claiming loss, on account of expenditure.
• Therefore, The very act of filing a revised return of income claiming loss as against ‘Nil’ income in the original return by itself amounts to furnishing of inaccurate particulars warranting penalty u/s 271(1)(c).

Held by ITAT Chennai:

• The ITAT observed that it is implied from Explanation 1 to Sec 271(1)(c) onus is on the assessee to prove that such explanation is given by the assessee is bonafide. ITAT relied on the decision of CIT v. Nathulal Agarwala & Sons (145 ITR 292), Full Bench of Patna HC held that the explanation of the assessee for avoidance of penalty must be an acceptable explanation. Therefore, assessee has to prove at least that material brought on record must show that what he says is reasonably valid.
• The explanation of the assessee has to be considered on merits and one has to examine as to whether the explanation so given by the assessee can be treated as an acceptable explanation or not.
• The assessee prepared the original return and claimed no loss for the expenditure incurred prior to business commencement. This action of assessee clearly indicate that assessee was aware of legal provisions. Now, the assessee provided explanation that the loss was claimed on the basis of auditor’s report who certified the loss shown by the assessee in the financial statements.
• It is why because the assessee prepared the original return also on the basis of audited financial statements and auditor’s. Being so, it cannot be believed that the assessee chose to revise its earlier return consequent upon knowing that there are omissions or wrong statements in the original return of income. The assessee is having full knowledge about the wrong claim made by it and therefore, it cannot take a plea that the error is bonafide and it is to be condoned.
• Therefore, the tribunal reversed the order of CIT(A) and restored the penalty order.