The Principal Commissioner Of Income Tax, Vadodara 1 v. Gujarat State Electricity Corporation Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 338 of 2022 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1 VersusGUJARAT STATE ELECTRICITY CORPORATION LTD. ========================================================== Appearance: MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1MR MANISH J SHAH(1320) for the Opponent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAandHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 06/09/2022 ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1. This appeal is filed by the Revenue undersection 260A of the Income Tax Act, 1961 (For short “the Act”) feeling aggrieved by thejudgment and order dated 30.09.2021 passed bythe Income Tax Appellate Tribunal, Ahmedabad“C” Bench (For short “the Tribunal”) in ITANo. 1778/Ahd/2017 for the assessment year2007-2008 whereby the Tribunal allowed the appeal filed by the respondent assessee deleting the penalty under section 271(1)(c)of the Act amounting to Rs.1,46,48,271/- levied by the Assessing Officer and confirmedby the CIT(Appeals). 2. Following substantial questions of law are proposed: “(a) Whether on the facts and in thecircumstances of the case and in law,the Hon'ble ITAT is justified indeleting the penalty levied u/s 271(1)(c) of the Income Tax Act against theassessee for furnishing inaccurateparticulars of income in respect of theaddition made on account of disallowanceof interest expenses by observing thatthe assessee has corrected the mistakeby showing the same as income in thesubsequent assessment year, withoutappreciating the fact that the assesseeis maintaining regular books of accountsand the same were audited by a qualifiedChartered Accountant as required by theprovisions of the Income tax Act, 1961and hence the wrong claim of hugeinterest expenses cannot be said to be abonafide mistake? (b) Whether on the facts and in thecircumstances of the case and in law,the Hon'ble ITAT is justified indeleting the penalty levied u/s 271(1)(c) of the Income Tax Act, withoutappreciating the fact that the assesseehad made legally unsustainable and wholly untenable claim in its books ofaccounts which was discovered by theAssessing Officer only during scrutinyassessment proceedings? (c) Whether on the facts and in thecircumstances of the case and in law,the Hon'ble ITAT is justified indeleting the penalty levied u/s 271(1)(c) of the Income Tax Act, withoutappreciating the fact that the assesseehas made legally unsustainable anduntenable claim of interest expenses inthe audited Profit & Loss Account duringthe year under consideration and thesame was shown as prior period income inthe subsequent year only after the casewas selected for scrutiny assessment andnotice u/s 143(2) of the Income Tax Actwas issued and served upon the assesseeon 15.09.2008 whereas the return ofincome for the subsequent assessmentyear was filed only on 30.09.2008? (d) Whether on the facts and in thecircumstances of the case and in law,the Hon'ble ITAT is justified indeleting the penalty levied u/s 271(1)(c) of the Income Tax Act, withoutappreciating the fact that the assesseehad made claim of interest expensestwice in the Profit & Loss Account forthe year under consideration but theassessee had neither initiated anyremedial action to rectify this errornorsubmittedanysatisfactoryexplanation for making such wrong claimof interest leading to conclusion thattheassesseehadmademalafideintentions for making wrong claim ofinterest expenses in the Profit & Loss Account and thus this case is covered byExplanation 1 to Section 271(1) of theIncome Tax Act, 1961?” (d) Whether on the facts and in thecircumstances of the case and in law,the Hon'ble ITAT is justified indeleting the penalty levied u/s 271(1)(c) of the Income Tax Act, withoutappreciating the fact that the assesseehad made claim of interest expensestwice in the Profit & Loss Account forthe year under consideration but theassessee had neither initiated anyremedial action to rectify this errornorsubmittedanysatisfactoryexplanation for making such wrong claimof interest leading to conclusion thattheassesseehadmademalafideintentions for making wrong claim ofinterest expenses in the Profit & Loss Account and thus this case is covered byExplanation 1 to Section 271(1) of theIncome Tax Act, 1961?” 3. Brief facts of the case are that the assesseeGujarat State Electricity Corporation Ltd. filed return of income for the assessmentyear 2007-2008 on 24.10.2007 declaring totalincome of Rs. Nil. 4. During the course of scrutiny assessment, it was noticed by the Assessing Officer that the assessee has accounted interest expenses ofRs.11,92,00,000/- twicely. The AssessingOfficer therefore, disallowed the same andadded it to the total income of the assesseeunder the regular provision as well as in thebook profit under section 115JB of the Act.The Assessing Officer also disallowed1,13,55,000/- under section 14A of the Actand considering both the disallowances leviedpenalty under section 271(1)(c) of the Act at100% amounting to Rs.1,46,48,271/-. 5. It is not in dispute that the assesseeaccounted for provision of interest twice bymistake and on realising such mistake,necessary rectification entries were passedin the subsequent year and the same wasoffered as income. 6. CIT(Appeals) in the appeal filed by theassessee deleted the penalty on account ofdisallowance made under section 14A of theAct but confirmed the penalty with regard toaddition of provision for interest expensesmade twice in computation of book profit ofthe assessee on the ground that the assesseeought to have file revised return of incomeby offering the amount as part of its bookprofit for the year under consideration andas the assessee failed to do so, penalty onaccount of such legally untenable claim wasconfirmed. 7. The assessee therefore, preferred appealbefore the Tribunal with regard to the ordersustaining penalty by CIT(Appeals) forinterest expenses of Rs. 11.90 crores whichwas accounted twice. 8. The Tribunal however, considering the fact that the assessee was a public sector undertaking and bona fide mistake of twiceaccounting the provision for interest expenses was rectified by showing the saidinterest expenses as prior period income inthe subsequent year 2008-2009, allowed theappeal deleting the penalty under section271(1)(c) of the Act. 9. The Tribunal has arrived at finding of fact that the assessee under bona fide mistake,made provision for interest expenses of Rs. 11.90 crores twice which was rectified in thesubsequent years by showing the said expenditure as prior period income. TheTribunal also relied upon the decision of theHon’ble Supreme Court in case ofCIT, Ahmedabad v. Reliance Petro-Products Pvt. Ltdreported in 322 ITR 158(SC) and in case ofPrice Watercoopers Pvt. Ltd. v.CIT, Kolkattareported in 348 ITR 306, wherein it is heldthat merely because assessee has claimedexpenditure which claim was not acceptable torevenue then that would not attract penaltyunder section 271(1)(c) of the Act moreparticularly, when the mistake was rectifiedby the assessee in subsequent year. 10.Learned advocate Mr. Varun Patel for theappellant Revenue submitted that the assesseeought to have filed revised return onrealisation of the mistake and could not haverectified such mistake by showing the saidinterest expenditure as prior period incomein subsequent year. It was submitted that for Ahmedabad v. Reliance Petro-Products Pvt. Ltdreported in 322 ITR 158(SC) and in case ofPrice Watercoopers Pvt. Ltd. v.CIT, Kolkattareported in 348 ITR 306, wherein it is heldthat merely because assessee has claimedexpenditure which claim was not acceptable torevenue then that would not attract penaltyunder section 271(1)(c) of the Act moreparticularly, when the mistake was rectifiedby the assessee in subsequent year. 10.Learned advocate Mr. Varun Patel for theappellant Revenue submitted that the assesseeought to have filed revised return onrealisation of the mistake and could not haverectified such mistake by showing the saidinterest expenditure as prior period incomein subsequent year. It was submitted that for the year under consideration, the mistake wasnot rectified and therefore, the AssessingOfficer as well as CIT(Appeals) werejustified for levy of penalty upon theassessee on the expenditure which could nothave been claimed by the assessee. 11.We have considered the submissions madeby learned advocate for the Revenue and inview of finding of fact arrived at by theTribunal to the effect that the assessee onrealisation of the mistake, has rectified thesame by offering the provision for interestof Rs. 11.90 crores as prior period income insubsequent year and therefore, in view ofsuch necessary correction done by theassessee on detecting the mistake pointed outby the Assessing Officer during theassessment proceedings for the year underconsideration, it can be inferred that thereis no mensrea on part of the assessee so as to attract the penalty under section 271(1)(c) of the Act. 12.We are therefore, of the opinion that nointerference is required to be made in theimpugned order passed by the Tribunal as noquestion of law much less any substantialquestion of law proposed or otherwise arisefrom the impugned order of the Tribunal. 13.The appeal accordingly stands dismissed. (N.V.ANJARIA, J) RAGHUNATH R NAIR (BHARGAV D. KARIA, J)