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August 3, 2023

No Penalty for Voluntary Section 43B Enhancement Disallowance

No Penalty for Voluntary Section 43B Enhancement Disallowance

Fact and issue of the case

This appeal concerns Assessment Year (AY) 2014-15.

Via this appeal the appellant/revenue seeks to assail the order dated 24.05.2019 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].

The Tribunal via the impugned order has set aside the penalty levied on the respondent/assessee under Section 271(1)(c) of the Income Tax Act, 1961 [in short, “the Act”] amounting to Rs.14,31,07,613/-. The Assessing Officer (AO) had levied the said amount as penalty on account of disallowance under Section 43B of the Act.

Mr Aseem Chawla, learned senior standing counsel, who appears on behalf of the appellant/revenue, says that the order of the Tribunal is not sustainable, in view of the fact that the disallowance said to have been made “voluntarily” by the respondent/assessee under Section 43B of the Act, was triggered on account of notices issued under Section 143(2) and/or Section 142(1) of the Act.

On the other hand, Mr Abhimanyu Jhamba, who appears on behalf of the respondent/assessee, contends to the contrary.

The following facts, as found by the Tribunal, are not in dispute:

(i) On account of floods in Himachal Pradesh, the respondent/assessee incurred huge losses and had to take recourse to Corporate Debt Restructuring Scheme (“CDR”), in respect of loans received from its lenders e., financial institutions.

(ii) CDR led to the working capital loan being converted into Working Capital Term Loan (“WCTL”) and the interest which had accrued on the loan was converted into Fund Interest Term Loan (“FITL”).

(iii) In respect of the AY in issue, Return Of Income (“ROI”) was filed by the respondent/assessee on 30.11.2014.

(iv) The original ROI was revised by the respondent/assessee on 01.09.2016 (online filing was made on 29.08.2016).

(v) The revision in the ROI was triggered by a revision in the tax audit report, which was carried out on 26.08.2016. The tax audit report was revised by the Chartered Accountant of the respondent/assessee suo motu.

(vi). The initial tax audit report adverted to a disallowance under Section 43B of the Act, albeit, amounting to Rs.6,08,64,813/-. In the revised tax audit report, the disallowance was suo motu enhanced to Rs.48,18,93,419/-.

(vii) The query with regard to the issue concerning disallowance under Section 43B of the Act was raised by the AO for the first time via a notice dated 21.11.2016 issued under Section 142(1) of the Act.

Having regard to these facts, which, as indicated above, are not in dispute, the Tribunal concluded that the disallowance was enhanced, voluntarily, and therefore, this was not a case in which penalty ought to have been imposed.

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