2014 (5) TMI 664 - AT - Income Tax

Tribunal deletes penalties under Section 271(1)(c) emphasizing good faith

The Tribunal allowed the assessee's appeal, concluding that there was no concealment or filing of inaccurate particulars of income. The penalties under ... Penalty u/s 271(1)(c) of the Act - Disallowance of claim of various expenses – Sharing of expenses - Genuineness of the expenses – Held that:- The quantum additions in penalty proceedings are two separate and distinct proceedings - Penalty cannot be levied for every disallowance made in the assessment order - revenue authorities have not brought anything on record which could prove the non-genuineness of the documents - The expenses payable to M/s. APR Limited were shown separately by the assessee in the profit and loss account and the same has been also discussed by the auditor in the audit report – the assessee has made a claim which was transparent and bona fide - Assessee has not concealed anything in the regard - it cannot be a case of concealment of facts - as far as the filing of inaccurate particulars of income is concerned, assessee was having huge carry forward losses and depreciation and the return was filed at nil income - there cannot be a motive or incentive for the assessee to make any bogus claim in the return of income - The facts show that whatever claim made by the assessee was under good faith and with the advice of the auditors and the employees - assessee has furnished an explanation which has not been found false. Relying upon COMMISSIONER OF INCOME-TAX Versus RELIANCE PETRO PRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] – the assessee has made a genuine claim of write off with regard to the obsolete items - The fact has been disclosed in the return of income - the assessee has failed to obtain approval from the excise authorities shall not make assessee’s claim as bogus - It was a bonafide claim and no penalty u/s 271(1)(c) can be levied on the bonafide claim made in the return of income - with regard to the disallowance out of the unpaid amount, the claim was also not false claim - The assessee is following mercantile system of accounting where principle of accrual of expenses is allowable - Simply by stating that liability was unascertained, no penalty can be levied on the assessee on the ground - there is no concealment of income or filing of any inaccurate particulars of income which could bring the assessee under the provisions of section 271(1)(c) of the Act - The assessee has huge accumulated losses and depreciation which further strengthen the view that there was no incentive for assessee to make such claims for the benefit of tax – Decided in favour of Assessee. Issues Involved:1. Levy of penalty under Section 271(1)(c) for administrative expenses payable to M/s. APR Ltd.2. Levy of penalty for write-off of unsaleable stock.3. Levy of penalty for unpaid expenses.4. General applicability of penalty under Section 271(1)(c).Detailed Analysis:1. Levy of Penalty for Administrative Expenses Payable to M/s. APR Ltd.:The assessee claimed administrative expenses of Rs.3,89,78,000/- payable to M/s. APR Ltd. The Assessing Officer disallowed this expense, stating the assessee did not benefit from it and failed to justify it as wholly and exclusively for business purposes. The ITAT confirmed the addition, noting that the liability was settled by issuing preferential shares. The assessee argued that penalty proceedings are distinct from quantum proceedings and relied on various judgments, including CIT Vs Bimal Kumar Damini and CIT Vs J.K. Synthetics, asserting that the claim was made bona fide and transparently. The Tribunal agreed, noting that the assessee had submitted all necessary documentation, including an agreement and confirmation from M/s. APR Ltd. The Tribunal concluded that the claim was made in good faith, and there was no concealment or furnishing of inaccurate particulars of income.2. Levy of Penalty for Write-off of Unsaleable Stock:The assessee claimed a write-off of Rs.8,57,119/- for unsaleable stock, which was disallowed by the Assessing Officer on the grounds that the basis for the write-off was not substantiated, and necessary excise approvals were not obtained. The Tribunal noted that the write-off was certified by auditors and reflected in financial statements. The Tribunal held that the claim was made bona fide and that the mere failure to obtain excise approval did not render the claim false. Therefore, no penalty under Section 271(1)(c) could be levied for this bonafide claim.3. Levy of Penalty for Unpaid Expenses:The assessee claimed unpaid expenses of Rs.72,794/-, which were disallowed by the Assessing Officer as unascertainable liabilities. The Tribunal noted that the assessee followed the mercantile system of accounting, where expenses are allowable on an accrual basis. The Tribunal held that the claim was not false, and the mere characterization of the liability as unascertainable did not justify the imposition of a penalty.4. General Applicability of Penalty under Section 271(1)(c):The Tribunal emphasized that penalty under Section 271(1)(c) is not automatic for every disallowance made in the assessment order. The Tribunal referenced the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which stated that making an incorrect claim does not amount to furnishing inaccurate particulars of income. The Tribunal noted that the assessee had substantial carry-forward losses and depreciation, indicating no motive to make bogus claims. The Tribunal concluded that the assessee's claims were made in good faith and were transparent, and thus, no penalty under Section 271(1)(c) was warranted.Conclusion:The Tribunal set aside the orders of the lower authorities, concluding that there was no concealment of income or filing of inaccurate particulars of income by the assessee. The appeal of the assessee was allowed, and the penalties levied under Section 271(1)(c) were deleted.