Where interest earned by assessee on KFW grants received from Germany was not shown in profit and loss account following AS-1 but disclosed in audit report, penalty under section 271(1)(c) would not be justified

Commissioner of Income-tax - IV v. Housing and Urban Development Corporation Ltd* [2014] 41 taxmann.com 30 (Delhi)

Section 271(1)(c), read with section 28(i), of the Income-tax Act, 1961 - Penalty - For concealment of income [Dis-allowance of claim, effect of] - Assessment year 1997-98 - Assessee earned interest on KFW grants received from Germany - Contention of assessee was that interest should not be included and shown in profit and loss account as this was contrary to Accounting Standard No. 1 issued by ICAI - In paragraph 3 of Schedule 'U', commercial audit report, specific statement to said effect was made - Tribunal had gone into explanation given by assessee and found nature and type of accounting change in accord with and as per Accounting Standard 1 - Further it was found that full and true disclosure of facts were made by assessee - Whether since assessee proceeded in bonafidely manner, deletion of penalty would be justified - Held, yes [Para 3] [In favour of assessee]

 JUDGEMENT

• At the outset, we record that Annexure-2 to the appeal does not relate to the penalty proceedings but is an order passed by the Commissioner of Income Tax (Appeals) relating to the assessment proceedings. However, having gone through the facts recorded by the tribunal, we do not find any ground or reason to interfere with the impugned order deleting penalty for concealment under Section 271(1)(c) of Income Tax Act, 1961 (Act) in respect of assessment year 1997-98. Learned counsel for the appellant does dispute full and true disclosure by the respondent in view of the specific statement made in the 'Notes on Accounts' on change in method of accounting and why and for what reason Rs.8.67 crores was not included in the taxable income. The respondent- assessee had earned interest on KFW grants received from Germany. The contention of the assessee was that this interest should not be included and shown in the profit and loss account as this was contrary to Accounting Standard No.1 issued by the Institute of Chartered Accountants of India. The tribunal has specifically referred to and reproduced the commercial audit report and paragraph 3 of Schedule 'U' in which the specific statement to the said effect was made. 
• Learned counsel for the Revenue however submits that in the last year i.e., the assessment year 1996-97 the assessee on their own had added back Rs.29.62 crores and included the same for the purpose of computation of income-tax. This was on the basis of legal advice given by the auditor. 
• The tribunal in the impugned order has gone into the explanation given by the assessee and also the nature and type of accounting change in accord and as per Accounting Standard No.1. To this extent, there is no dispute and the Revenue cannot and does challenge the findings recorded by the tribunal. As far as the assessee himself adding back Rs.29.62 crores in the last year is concerned, it was on the basis of legal or professional advice but this did not bar or prohibit the assessee to make a claim in the next years. Full and true disclosure of facts was made by the assessee and it was not the case of the Revenue that the explanation offered and the stand of the assessee was not legally plausible. The assessee, therefore, as recorded by the tribunal, had proceeded bonafidely. Last year the assessee may have taken a conservative view but in the current year upon reconsideration they had made the claim, after full details were mentioned and stated. On legal issues there can be difference of opinion. A claim which requires consideration on merits but facts and figures are correct and transparently stated, does not justify imposition of penalty. Such cases are covered by Explanation 1. The tribunal?s finding that the explanation was bona fide cannot and should not be interfered with. The said finding is a finding of fact. 
• The appeal has no merit and is accordingly dismissed.