DCIT Vs. Maharashtra State Power Generation Co. Ltd. (ITAT Mumbai)
The issue under consideration is whether the cancellation of the penalty u/s 271(1)(c) by the CIT(A) is justified in law?
ITAT states that, the claim of the assessee that no penalty under Sec. 271(1)(c) could have been validly levied in its hands in respect of the said issue. Also, ITAT find that the assessee in the course of the penalty proceedings before the A.O, and also in the course of the appellate proceedings before the CIT(A) had satisfactorily explained that the coal cost freight issue (Bhusaval) was an expense allowable under Sec.37(1) of the Act, which for the said reason was claimed as a deduction in its revised return of income on the basis of the audit report. ITAT find that the lower authorities had not recorded any observation which could dislodge the veracity of the aforesaid claim of expense so raised by the assessee in its revised return of income. Apart there from, ITAT are also of a strong conviction that now when the assessee had came forth with the full disclosure of all the particulars in respect of its aforesaid claim of expense, which as observed by us hereinabove had not been proved to be incorrect by the lower authorities, therefore, merely for the reason that the addition/disallowance on the said count had not been assailed by the assessee in its quantum appeal before the Tribunal would not justify imposition of penalty under Sec. 271(1)(c) on the assessee on the said standalone basis. Our aforesaid view is fortified from the fact that the penalty proceedings are separate and distinct from the assessment proceedings, and merely for the reason that an addition/disallowance had been made in the hands of the assessee would not justify imposition of penalty u/s 271(1)(c). ITAT have given a thoughtful consideration to the observations of the CIT(A) that as the assessee had raised a bonafide claim of expense as regards the coal cost freight issue-Bhusaval in its revised return of income, therefore, no penalty under Sec.271(1)(c) could have been levied on it, and in the backdrop of our aforesaid deliberations find ourselves to be in agreement with the view taken by him. Accordingly, finding no infirmity in the order of the CIT(A) wherein he had rightly vacated the penalty imposed by the A.O under Sec.271(1)(c), ITAT uphold the same.
Hence, the appeal of the revenue is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-21, Mumbai, dated 24.04.2012, which in turn arises from the order passed by the A.O under Sec. 271(1)(c) of the Income Tax Act, 1961 (for short „Act‟), dated 31.03.2011 for A.Y. 2006-07. The revenue has assailed the impugned order on the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in cancelling the penalty imposed u/s. 271(1)(c) of the Income Tax Act, 1961, ignoring the facts on record which go to establish that the assessee had understated the income and thereby furnished inaccurate particulars of income.
2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the penalty imposed u/s. 271(l)(c) of the Income Tax Act, 1961, ignoring the facts that the quantum addition was confirmed in appeal.
3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
4. The appellant craves leave to amend, or alter any grounds or add a new ground, which may be necessary.”
2. Briefly stated, the assessee company is engaged in the business of generation of electricity and had started functioning from 06.06.2005 after the erstwhile Maharashtra State Electricity Board was trifurcated into three companies viz. (i) Maharashtra State Electricity Distribution Company Ltd.; (ii) Maharashtra State Power Generation Company Ltd.; and (iii) Maharashtra State Electricity Transmission Company Ltd. Each of the aforesaid companies were to look after one of the three aspects of the erstwhile electricity board i.e generation, transmission and distribution of electricity. Accordingly, the year under consideration i.e period relevant to A.Y. 2006-07 was the first year of operation of the assessee company. The assessee company had e-filed its return of income for A.Y. 2006-07 on 30.11.2006, declaring Nil income after claiming „set off‟ of brought forward losses and unabsorbed depreciation amounting to Rs.623,47,43,689/-. Subsequently, the assessee filed a revised return of income declaring Nil income after claiming “set off” of brought forward losses amounting to Rs.288,90,26,701/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Thereafter, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
3. During the course of the assessment proceedings it was observed by the A.O that in the revised return of income of the assessee company a „note‟ had been posted below the statement of computation of income, which read as under :
“Reason for revising the return: The return of income is being revised as the original return of income for the assessment year 2006-07 was filed on the basis of unaudited accounts as the accounts were not audited till the due date of filing of the return of income. This is as per the letter dated 14th February, 2007 bearing reference No. GM/CA/Rev. Return/MSPGCL/2007.”
On a perusal of the tax audit report and the statement of computation of income forming part of the revised return, it was noticed by the A.O that the tax audit of the assessee company was completed only on 12.02.2007 when the report under Sec.44AB of the Act was signed and issued by the auditors in Form Nos. 3CA/3CD. It was noticed by the A.O that it was the claim of the assessee that the “Original” return of income was based on unaudited accounts, while for the revised return was as per the audited accounts. The A.O declined to accept the revised return of income filed by the assessee. As per the A.O a return of income could be revised under Sec.139(5) only on discovery of any omission or wrong statement in the „original‟ return. Accordingly, the A.O was of the view that as in the present case the return was revised on the ground that the „original‟ return of income was filed on the basis of unaudited accounts, which could never be a criteria for revising a return under Sec.139(5), therefore, he declined to accept the same. The A.O while framing the assessment made an addition of the amount of Rs.334,57,16,988/- i.e the difference in the total income as per the „original‟ and the revised return of income of the assessee. The A.O while framing the assessment also initiated penalty proceedings under Sec. 271(1)(c) of the Act.
