Facts of the Case

  • The assessee, a public sector undertaking, filed its return declaring income of ₹1,16,540, later revised to NIL.
  • During scrutiny, the Assessing Officer disallowed ₹14.25 crore claimed as foreign exchange fluctuation loss.
  • The assessee, before completion of assessment, accepted that such loss should be capitalized and claimed depreciation of ₹3.45 crore.
  • The AO made addition but did not allow depreciation.
  • Penalty of ₹4.40 crore under Section 271(1)(c) was imposed for concealment/inaccurate particulars.
  • CIT(A) deleted the penalty; ITAT upheld the deletion.
  • Revenue appealed before the Delhi High Court.

Issues Involved

  1. Whether a wrong claim of foreign exchange fluctuation loss as revenue expenditure attracts penalty under Section 271(1)(c)?
  2. Whether voluntary correction before assessment negates the charge of concealment or furnishing inaccurate particulars?

Petitioner’s Arguments (Revenue)

  • The assessee corrected its claim only after detection by the Assessing Officer.
  • The incorrect claim amounted to furnishing inaccurate particulars of income.
  • The orders of CIT(A) and ITAT deleting penalty were erroneous.

Respondent’s Arguments (Assessee)

  • The claim was a bona fide error, corrected before assessment completion.
  • Full disclosure was made in the Profit & Loss Account.
  • No mala fide intention or concealment existed.
  • Being a loss-making PSU, no tax advantage was derived.

Court Findings / Analysis

  • The Court held that the assessee could not have claimed the loss as revenue expenditure under Section 43A.
  • However, the assessee:
    • Accepted the mistake during assessment
    • Claimed depreciation correctly
    • Did not conceal income or furnish false particulars
  • The Court observed:
    • The assessee had huge accumulated losses, hence no tax benefit accrued.
    • The case was merely of a wrong claim, not concealment
    • Correction was made before completion of assessment
  • Reliance placed on:
    • Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd.
    • PCIT v. Taneja Developers and Infrastructure Ltd.

Court Order / Final Judgment

  • No substantial question of law arose.
  • Penalty under Section 271(1)(c) was not leviable.
  • Appeal of the Revenue was dismissed.

Important Clarification

  • Mere wrong claim or incorrect computation does not attract penalty.
  • Penalty requires:
    • Concealment of income OR
    • Furnishing inaccurate particulars with mala fide intent

Voluntary correction during assessment proceedings supports bona fide conduct.

Sections Involved

  • Section 271(1)(c) – Penalty for concealment / furnishing inaccurate particulars
  • Section 274 – Show Cause Notice
  • Section 43A – Foreign Exchange Fluctuation Adjustment
  • Section 32(1)(ii) & (iia) – Depreciation
  • Section 143(3) – Assessment

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/59022032023ITA9622018_123952.pdf

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