2016 (5) TMI 1220 - AT - Income Tax

Tribunal overturns penalty for discount provisions, directing deletion of penalty amount. Assessee's appeal allowed.

The Tribunal held that the penalty imposed under section 271(1)(c) for disallowance of provisions for discount was incorrect. The order confirming the ... Penalty u/s 271 (1) (c) - disallowance of provisions for discount - Held that:- From the order of the First Appellate Authority for the subsequent year i.e. AY 2008-09, we find that the assessee had taken additional ground vide para 9 at page 6 of the appellate order passed under section 250(6) praying before the First Appellate Authority to allow the provision for discount of ₹ 30,95,650/- disallowed in the assessment year 2007-08 for being contingent in nature. Para 3.3 at page 7 of the said order reveals that the assessee had created provisions for ₹ 30,95,650/- and out of which ₹ 8,23,376/- was passed on to the customers and remaining amount of ₹ 22,33,724/- was reversed and offered to tax in assessment year 2008-09. In para 3.5 of the said order, the assessee submitted that in case, the provision for discount is held to be contingent in nature in assessment year 2007-08, actual discount of ₹ 8,23,376/- passed on to the customers in assessment year 2008-09 should be allowed as expenditure in assessment year 2008-09 and further balance of ₹ 22,33,724/- which was suo motu reversed by the assessee in assessment year 2008-09 should not be taxed in assessment year 2008-09 as it has been already taxed in assessment year 2007-08. From para 12 at page 7 of the said order, we find that the ld. CIT(A) allowed the appeal of the assessee by directing the AO not to tax the provision in the subsequent year which was not allowed in the earlier years. Thus we are of the opinion that the penalty imposed u/s 271(1)( c ) and as sustained by the ld.CIT(A) is wrong and against the provision of law. - Decided in favour of assessee Issues Involved:1. Confirmation of penalty levied under section 271(1)(c) of the Income Tax Act, 1961 for disallowance of provisions for discount.Issue-wise Detailed Analysis:1. Confirmation of Penalty Levied Under Section 271(1)(c) for Disallowance of Provisions for Discount:The assessee filed an appeal against the order confirming the penalty of Rs. 10,41,995/- levied under section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed for disallowance of provisions for discount amounting to Rs. 30,95,650/- as made by the Assessing Officer (AO).Facts of the Case:The assessee declared a total income of Rs. 9,77,20,121/- for the assessment year 2007-08. During scrutiny, the AO observed that the assessee had debited Rs. 30,95,650/- as provisions for discount, which were contingent in nature. The AO disallowed this amount and initiated penalty proceedings under section 271(1)(c), alleging that the assessee had filed inaccurate particulars of income. The penalty was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], who cited that the assessee filed an inaccurate claim to evade tax liability.Assessee's Argument:The assessee argued that the additions made were tax neutral and that the practice of debiting provisions for discount had been accepted by the department in earlier and subsequent years. The provisions were created for discounts to be given to customers who made timely payments, and any unused provisions were reversed and offered to tax in the subsequent year. The assessee cited the acceptance of this practice in assessment years 2004-05 to 2006-07 and 2008-09 to 2009-10, with only the assessment year 2007-08 being disputed. The assessee also referenced the decision of the Gujarat High Court in the case of CIT vs. J H Parabia (Transport (P) Ltd) and the Agra Bench of the Tribunal in the case of Addl. CIT vs. Kisan Sahkari Chini Mills Ltd to support their argument.Revenue's Argument:The Departmental Representative (DR) argued that the penalty should be upheld as the assessee had filed inaccurate particulars of income by creating provisions for discount of a contingent nature.Tribunal's Findings:The Tribunal noted that the assessee had consistently followed the practice of creating provisions for discount and reversing unused provisions, which had been accepted by the department in other years. The Tribunal found merit in the assessee's submission that the practice was tax neutral and that the assessee had a bona fide belief that the provisions for discount were allowable expenses. The Tribunal referenced the First Appellate Authority's order for the assessment year 2008-09, which directed the AO not to tax the provision in the subsequent year if it was not allowed in the earlier year.The Tribunal also cited the decisions in the cases of J H Parabia (Transport (P) Ltd) and Kisan Sahkari Chini Mills Ltd, which supported the assessee's position that the penalty under section 271(1)(c) was not warranted in cases where the practice had been consistently followed and accepted by the department.Conclusion:The Tribunal concluded that the penalty imposed under section 271(1)(c) and sustained by the CIT(A) was incorrect and against the provisions of law. The order of the CIT(A) was set aside, and the AO was directed to delete the penalty of Rs. 10,41,995/-. The appeal of the assessee was allowed.Order Pronouncement:The order was pronounced in the open court on 25th May, 2016.