No Concealment Penalty if Assessee Corrected Mistake Before Assessment Order was Passed: HC

Case Details: PCIT v. National Textiles Corporation Ltd. - [2023] 151 taxmann.com 512 (Delhi)

Judiciary and Counsel Details

• • Rajiv Shakdher & Ms Tara Vitasta Ganju, JJ.
  • Ruchir Bhatia, Sr. Standing Counsel for the Appellant.
  • Ved Jain & Nischay Kantoor, Advs. for the Respondent.

Facts of the Case

Assessee-company claimed foreign exchange fluctuation loss under the head finance charges of the profit and loss account. During the scrutiny proceedings, the Assessing Officer (AO) contended that as per section 43A, the foreign exchange fluctuation loss was to be allowed on payment basis and adjusted from the corresponding cost of the relevant plant and machinery.

Accordingly, he disallowed foreign exchange fluctuation loss and added back to the assessee’s income.

The assessee admitted that due to bona fide error, it wrongly claimed foreign exchange rate difference as an expense that the AO disallowed and accepted by the assessee. Further, on the discovery of mistake during assessment proceedings, it voluntarily surrendered the amount as per documents placed on record and not even disputed it in the regular appeal.

Despite this, AO disallowed depreciation on account of an increase in the cost of plant & machinery by the amount of foreign exchange fluctuation and also levied penalty under section 271(1)(c) on account of wrong claim or incorrect computation.

On appeal, the CIT(A) allowed the depreciation claim and deleted the penalty. The Tribunal further confirmed the order of CIT(A). The matter reached the Delhi High Court.

High Court Held

The High Court held that the record shows that the assessee could not have claimed the loss on account of foreign currency as deductible expenditure in view of the provisions of section 43A. It appears that this aspect emerged during scrutiny.

The assessee accepted this position, without demur, even before the assessment order was passed and claimed depreciation on the increased cost of plant and machinery, qua which foreign currency fluctuation loss had been incurred.

Further, the assessee had preferred the appeal with the CIT (A) only vis-a-vis that aspect of the assessment order whereby the AO had not granted depreciation. While dealing with the penalty order passed by the Commissioner, there was no advantage to the assessee in claiming foreign currency fluctuation loss as deductible expenditure, given that it had unobserved losses of approximately Rs. 12,000 crores.

Clearly, the assessee could not have gained anything by claiming foreign currency fluctuation loss as deductible expenditure, as it would have only added to the existing burgeoning losses. The assessee’s action would not call for the imposition of penalty, as once the AO pointed out the error, the assessee made a course correction before the assessment order was passed.

Accordingly, the revenue’s appeal was dismissed, and the order of the lower authorities were confirmed.

List of Cases Reviewed

• • CIT v. Reliance Petroproducts (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158 (SC)
  • Pr. CIT v. Taneja Developers and Infrastructure Ltd. [IT Appeal No. 11 of 2019, dated 24-3-2021] (para 23) followed.

List of Cases Referred to

• • CIT v. Reliance Petroproducts (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158 (SC) (para 23)
  • Pr. CIT v. Taneja Developers and Infrastructure Ltd. [IT Appeal 11 of 2019, dated 24-3-2021] (para 23).