The Commissioner Of Income Tax,Chennai v. M/S.celebrity Fashions Ltd.,Sdg, Iv And C2, 3[Rd] Main Road,Mepz/Sez, Tambaram,Chennai-600 045

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 25.06.2019 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal No.441 of 2018 The Commissioner of Income tax,Chennai. .. Appellant -vs- M/s.Celebrity Fashions Ltd.,SDG, IV and C2, 3[rd] Main Road,MEPZ/SEZ, Tambaram,Chennai-600 045.PAN: AAACC3696DD.. Respondent Appeal under Section 260A of the Income-tax Act, 1961against the order 06.12.2017 on the file of the Income-taxAppellate Tribunal 'B' Bench, Chennai in I.T.A.No.38/Mds/2017for the assessment year 2012-13 against the O/o. Commissioner ofIncome Tax (Appeals)-1, Chennai-34, made in ITA.283/CIT(A)-1/2015-16 dt.3.10.2016 for the assessment year 2012-2013 andagainst the O/O Deputy Commissioner of Income Tax CorporateCircle-1(2), Nungambakkam, Chennai – 34, made in PANAAACC3696D/2012-2013 dt.21/09/2015 For Appellant:Mrs.Hemalatha,Senior Standing CounselFor Respondent:Mr.A.S.Sriraman ****** JUDGMENT (Delivered by T.S.Sivagnanam, J.) This appeal filed by the appellant/Revenue under Section260A of the Income-tax Act, 1961 (hereinafter referred to as“the Act”), is directed against the order dated 06.12.2017,passed by the Income-tax Appellate Tribunal 'B' Bench Chennai(for brevity, “the Tribunal”), in I.T.A.No.38/Mds/2017 for theassessment year 2012-13. https://hcservices.ecourts.gov.in/hcservices/ 2.The Revenue has raised the following substantial questionsof law for consideration:-“(i) Whether the Tribunal was correct inholding that penalty levied u/s.271(1)(c) is notattracted even if the Assessee had claimed theunpaid interest to the schedule bank in its profitand loss account and failed to disallow the sameunder Sec.43B(e) of the Income-tax Act? (ii) Whether the Tribunal was correct inholding that the Assessee has proved that thefurnishing of inaccurate particulars leading toincorrect claim of expenditure was inadvertenteven when no steps were taken by the Assessee tofile a Revised Return despite being aware of thefact that it had made a wrong claim of expenditurein its profit and loss account?” 3.We have heard Mrs.R.Hemalatha, learned Senior StandingCounsel for the appellant/Revenue; and Mr.A.S.Sriraman, learnedcounsel for the respondent/assessee. 4.With the consent on either side, the appeal itself istaken up for disposal. 5.The first substantial question of law raised by theRevenue is whether the Tribunal is correct in holding thatpenalty levied under Section 271(1)(c) of the Act is notattracted even if the assessee had claimed unpaid interest tothe schedule bank in its profit and loss account and failed todisallow the same under Section 43B(e) of the Act. 6.The second question which has been raised by the Revenueis whether the Tribunal was correct in holding that the assesseeis not guilty of furnishing inaccurate particulars. 7.The assessee filed return of income for the assessmentyear under consideration, 2012-13 on 27.09.2012 admitting anincome of Rs.14,95,34,377/-. The case was selected for scrutinyand notice under Section 143(2) of the Act was served on theassessee. Thereafter, notice under Section 142(1) questionnairewas issued to the assessee. In response to such notice, theassessee appeared through its authorised representative andfurnished the details called for, and additions were made by theAssessing Officer, vide order dated 30.03.2015 under Section 143(3) of the Act. Subsequently, penalty proceedings wereinitiated under Section 271(1)(c) read with Section 274 of theAct by issuing notice dated 30.03.2015. The assessee submittedtheir reply along with a petition under Section 154 of the Actfor rectification of the mistake and placed reliance on thedecision of the Hon'ble Supreme Court in the case of PriceWaterhouse Coopers Private Limited vs. CIT reported in (2012) https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ 348 ITR 306 (Kalcutta). The Assessing Officer by order dated21.09.2015, held that the assessee is guilty of furnishinginaccurate particulars and the provision of Section 271(1)(c)would stand attracted. Further, it was observed that furnishingof inaccurate particulars by the assessee has resulted in lesserincome to the tune of Rs.1,55,00,000/- being returned for therelevant assessment year 2012-13. Accordingly, the AssessingOfficer imposed minimum penalty of Rs.50,28,975/-. 8.The assessee carried the matter by way of appeal to theCommissioner of Income-tax (Appeals)-1, Chennai (“the CIT(A)”,for brevity). Before the CIT(A), the assessee contended thatthis amount was clearly disclosed by the assessee in the auditreport, that is, in point no.11 of the statutory audit report,dated 15.05.2012, and in page no.14 of the annual report for thefinancial year 2011-12, which was filed along with the return.The said record was also placed before the CIT(A). The assesseefurther stated that it is a bona fide error, inasmuch as thisamount and details were disclosed by the assessee in thedocuments along with the return of income. It was furthersubmitted that the returned loss of the assessee is Rs.14.95crores and the assessee has substantial carry forward lossesalso and consequently, the assessee had no benefit, interest orintention in making an unsupportable claim to enhance the loss. 9.Further, the assessee submitted that the said amount ofRs.1,55,00,000/- being interest on loan to bank, was offered totax by the assessee in the assessment year 2012-13 based onremission by bank under settlement scheme which will prove thebona fide of the assessee. In this regard, notes on accountsand annual accounts were referred to and the copies were placedbefore the CIT(A). The CIT(A) after considering the entirefactual matrix, held that the assessee could not be held to havefurnished inaccurate particulars of income, or concealed itsparticulars of income, or offered an explanation which it couldnot substantiate on the basis of material which it was relyingupon. Further, the CIT(A) applied the decision in the case ofPrice Waterhouse Coopers Private Limited (supra) and allowed theappeal filed by the assessee. 10.The Revenue carried the matter by way of appeal to theTribunal. The Tribunal once again went through the factualdetails and took note of the reply given by the assessee to thequery raised by the Assessing Officer that the assessee companyhas been declared as a sick industrial company under Section 3(1)(o) of the Sick Industrial Companies Act, vide order dated19.04.2011 and Board for Industrial and Financial Reconstructionissued directions to the lenders and to the assessee to submit aRehabilitation Scheme as per Section 18 of the Sick IndustrialCompanies Act. Further, the Tribunal noted the reply given bythe assessee stating that the term loan obligations and interest commitments have been met in full with respect to the State Bankof India in accordance with the terms and conditions of thesanction letter. However, the assessee has defaulted inrepayments of term loans amounting to Rs.0.22 crores andinterest commitments amounting to Rs.1.55 crores with respect toHDFC Bank's borrowings and that the term loan repayment ispending since February, 2012 while the interest commitmentremains unpaid since January, 2011. The other relevant detailswith regard to the loan transaction with the HDFC Bank was alsomentioned in the reply. After considering these factual issues,the Tribunal accepted the finding recorded by the CIT(A) andheld that the omission to make suo motu disallowance underSection 43B(e) of the Act was an inadvertent error and not withan intention to understate the income. 11.Mrs.R.Hemalatha, learned Senior Standing Counsel placedreliance on the decision of the Hon'ble Supreme Court in thecase of Mak Data P. Ltd. vs. CIT reported in (2013) 358 ITR 0593(SC) and submitted that the assessee did not file any revisedreturn and consequently, the Assessing Officer was welljustified in levying penalty, that too, by exercisingdiscretion, he has levied only minimum penalty. 12.Further, it is submitted that the decision in PriceWaterhouse Coopers Private Limited (supra), will not apply tothe facts of the case, as in the said case, the assessee hadfiled a revised return. 13.In our considered view, the decision in Mak Data P. Ltd.(supra) would not be of any assistance to the case of theRevenue. The said case arose out of a survey proceedings underSection 133A of the Act and in the background of those facts,the Court examined the conduct of the assessee vis-a-vis theneed to impose penalty under Section 271(1)(c) of the Act.Admittedly, the case on hand is not a case of survey, but it isa case where the assessee having come to know about the same,after the Assessing Officer pointed it out, immediately filedpetition for rectification under Section 154 along withexplanation stating that it is an inadvertent error. Thedecision in the case of Price Waterhouse Coopers Private Limited(supra) is also identical where in the tax audit report filed bythe assessee, it was indicated that provision towards payment ofgratuity was not allowable, but the assessee therein failed toadd the said provision to total income. Considering the saidfact, the Hon'ble Supreme Court held that no penalty could beimposed for such mistake. The operative portion of the judgmentreads as follows:- “18.The fact that the Tax Audit Report wasfiled along with the return and that itunequivocally stated that the provision for https://hcservices.ecourts.gov.in/hcservices/ payment was not allowable under Section 40A(7) ofthe Act indicates that the assessee made acomputation error in its return of income.Apart from the fact that assessee did not noticethe error, it was not even noticed even by theAssessing Officer who framed the assessmentorder. In that sense, even the Assessing Officerseems to have made a mistake in overlooking thecontents of the Tax Audit Report. 19.The contents of the Tax Audit Reportsuggest that there is no question of the assesseeconcealing its income. There is also no questionof the assessee furnishing any inaccurateparticulars. It appears to us that all that hashappened in the present case is that through abona fide and inadvertent error, the assesseewhile submitting its return, failed to add theprovision for gratuity to its total income. Thiscan only be described as a human error which weare all prone to make. The calibre and expertiseof the assessee has little or nothing to do withthe inadvertent error. That the assessee shouldhave been careful cannot be doubted, but theabsence of due care, in a case such as thepresent does not mean that the assessee is guiltyof either furnishing inaccurate particulars orattempting to conceal its income.” 14.As noted by the CIT(A) as well as the Tribunal, theconduct of the assessee clearly establishes that it is aninadvertent error and cannot be stated to be a contumaciousconduct on the part of the assessee and cannot be stated to bewith an intention to understate his income by furnishinginaccurate particulars. 15.In the light of the said factual finding recorded by thetwo authorities, we find that there is no substantial questionof law arising for consideration in this appeal. Accordingly,the same stands dismissed. No costs. Assistant Registrar(Insp.Cell) abr //True Copy// Sub Assistant Registrar To 1.The Income-tax Appellate Tribunal 'B' Bench, Chennai. Chennai. 2.The Deputy Commissioner of Income-tax, Corporate Circle 1(2), Chennai. Corporate Circle 1(2), Chennai. 15.In the light of the said factual finding recorded by thetwo authorities, we find that there is no substantial questionof law arising for consideration in this appeal. Accordingly,the same stands dismissed. No costs. Assistant Registrar(Insp.Cell) abr //True Copy// Sub Assistant Registrar To 1.The Income-tax Appellate Tribunal 'B' Bench, Chennai. Chennai. 2.The Deputy Commissioner of Income-tax, Corporate Circle 1(2), Chennai. Corporate Circle 1(2), Chennai. 3.The Commissioner of Income-tax (Appeals)-1, 121, Mahatma Gandhi Road, Chennai-600 034. 121, Mahatma Gandhi Road, Chennai-600 034. +1cc to Mr.T.Ravikumar, Advocate, S.R.No.52260+1cc to Mr.S.Sridhar, Advocate, S.R.No.52454 RR(CO) T.C.A.No.441 of 2018 RRS(13/08/2019)