Unreported Decisions – February 2021

By Ajay R. Singh, Advocate

1. S. 271(1)(c) : Penalty –Concealment – debited the deferred tax asset written off in the profit and loss account as exceptional item – However, the same has not been disallowed in the computation of taxable income -Bona fide mistake – Deletion of penalty is held to be justified.

The assessee, a trader in capital goods filed its ROI for the AY: 2012-13 on 27.11.2012 declaring total loss of Rs.7,70,94,246/-. During the course of assessment proceedings, it is noticed by the A.O that the assessee has debited an amount of Rs.2,02,33,602/- as deferred tax asset written off in the profit and loss account as exceptional item. However, the same has not been disallowed in the computation of taxable income. In response to a query raised by the AO, the assessee explained vide order sheet noting dated 12.03.2015 that the same remained to be added inadvertently and accepted the addition. Accordingly, the AO made an addition of Rs.2,02,33,602/- to the total income of the assessee. Thus the total loss reflected by the assessee in the return of income was reduced to loss of Rs.5,68,60,644/-.

The AO then initiated penalty proceeding u/s 271(1)(c) of the Act. In response to the penalty notice u/s 274 r.w.s 271(1)(c) of the Act. The assessee filed a reply stating inter alia that the return of income was assessed declaring a total loss of Rs.5,68,60,644/-.

Further, during the course of assessment proceedings, assessee had accepted the addition made on account of deferred tax asset written off in the profit and loss account as exceptional item and also offered its explanation that the said expenditure was mistakenly allowed in the computation of total income, there was no intention of evasion of tax or understating its total income in any manner. In view of the above, Explanation 1 to section 271(1)(c) of the Act is not attracted by the A.O and is deemed bona fide.”

The Tribunal held that the carried forward loss has not been set off subsequently and the assessee has huge carry forward assessed losses of earlier years which were otherwise available for set off. As mentioned earlier, the financial statements of the assessee were placed before the AO during the course of assessment proceedings which clearly stated the deferred tax asset written off as a separate line item on the face of the profit and loss account. Also in Note 19 (Significant Accounting Policies) forming part of financial statements, has the details and explanation.

The Tribunal held that the facts clearly indicates that deferred tax asset written off was reported in the financials, however, the same was inadvertently left to be added back to the net loss before tax while making the tax computation. This error is only a computation error made in the return of income which occurred due to overlooking the contents of the profit and loss account. The contents of the financial statements do not conceal any particulars. The error committed by the appellant is a bona fide and inadvertent one. The obtaining factual matrix in the instant case is broadly similar to the decision in Price Waterhouse Coopers Pvt. Ltd [348 ITR 306](Supreme Court) instead of Dharmendra Textiles Processors (2008) 306 ITR 277 (SC). In view of the above factual scenario and position of law the penalty of Rs.65,64,793/- levied by the AO is deleted.

Illies Engineering India Pvt. Ltd. v DCIT 2(2)(1),[ ITA No. 109/MUM/2019, dated: 01/02/2021 (Mum- Trib)]

2. The amounts received by the assessee as the alternative accommodation – which is a compensation on account as hardship compensation, rehabilitation compensation and for shifting – capital receipt – not liable to tax.

During the course of appellate proceedings, the ld. CIT(A) found on the basis of details forwarded by from M/s. Calvin Properties that assessee has been given compensation for alternative accommodation of Rs.2,60,000/- as per in terms of Development agreement. According to the ld. CIT(A), the amount received was over and above the rent actually paid by the assessee and therefore, the same has to be taxed accordingly. The ld. CIT(A) issued notice u/s.251(2) dated 24/02/2017 qua the proposed enhancement. This was replied by the assessee by submitting that assessee received monthly rental compensation during the year aggregating to Rs.2,60,000/- for the alternative accommodation which is a compensation on account of her family displacements from the accommodation and tremendous hardship and inconvenience to her caused thereby and submitted that the said compensation is towards meeting / overcoming the hardship and it is a capital receipt and therefore, is not liable to be taxed. The assessee relied on the decision of the Coordinate Bench in the case of Kushal K. Bangia vs. ITO in ITA No.2349/Mum/2011 for A.Y.2007-08 wherein the AO did not tax the displacement compensation as it was held to be a receipt not in the nature of income, however, the ld. CIT(A) has rejected the contentions of the assessee and enhanced the assessment to the extent of Rs.2,60,000/- by holding that assessee has not paid any rent.

The Tribunal find that compensation received by the assessee towards displacement in terms of Development Agreement is not a revenue receipt and constitute capital receipt as the property has gone into re-development. In such scenario, the compensation is normally paid by the builder on account of hardship faced by owner of the flat due to displacement of the occupants of the flat. The said payment is in the nature of hardship allowance / rehabilitation allowance and is not liable to tax. The case of the assessee is squarely supported by the decision of the Co-ordinate Bench in the case of Shri Devshi Lakhamshi Dedhia ITA No.3526/ Mum/2017 Ms. Delilah Raj Mansukhani 4 vs. ACIT in ITA No.5350/Mum/2012 wherein similar issue has been decided in favour of the assessee.

Following the co-ordinate Bench decision, Tribunal set aside the findings of the ld. CIT(A) on this issue and direct the AO to delete the addition made of Rs.2,60,000/-.

Smt. Delilah Raj Mansukhani v ITO 35(1)(3) [ITA No. 3526/ MUM/2017, dated: 29/01/2021 (Mum- Trib)]