2009 (9) TMI 1004 - AT - Income Tax

Tribunal Upholds Penalty Deletion for Income Recognition Method

Dy. Commissioner of Income Tax, Circle-6 (1), New Delhi Versus M/s Medsave Healthcare Limited

Dy. Commissioner of Income Tax, Circle-6 (1), New Delhi Versus M/s Medsave Healthcare Limited - TMI Issues involved: Appeal against deletion of penalty u/s 271(1)(c) of the IT Act for AY 2003-04.Summary:1. The appeal was filed by the Revenue against the deletion of penalty imposed u/s 271(1)(c) of the IT Act for the AY 2003-04.2. The assessee, engaged in third party insurance administrative services, recognized TPA fees as income based on a specific apportionment method. The AO disagreed with this method, adding the entire TPA fee as income for the year. The CIT(A) upheld the AO's decision, but the Tribunal ruled in favor of the assessee, directing the AO to consider corresponding expenses in the following year.3. Subsequently, the AO levied a penalty u/s 271(1)(c) related to the income addition. The CIT(A) deleted the penalty, stating that the assessee had not furnished inaccurate particulars or concealed income, as expenses were to be incurred over a year. The Revenue appealed this decision.4. The Tribunal noted that the assessee followed the matching concept of income and expenses, apportioning TPA fees over quarters based on services rendered. The AO believed the entire fee should be recognized in the quarter received, contrary to the matching concept.5. The Tribunal found that the assessee had fully disclosed the income recognition method, with clear details in the financial statements. The Tribunal had previously directed the AO to allow the assessee's claim and rework the income accordingly. The Tribunal deemed the income recognition method bona fide, with no concealment or inaccurate particulars.6. Consequently, the appeal by the Revenue was dismissed, upholding the deletion of the penalty. The decision was pronounced on 25th September 2009.