TaxTMI 
TaxTMI 
2011 (11) TMI 45
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....alty. It is under these circumstances, present appeal is preferred by the Revenue questioning the wisdom of the Tribunal contained in its order dated 30.10.2009 and the appeal was admitted on the following substantial question of law: "Whether on the facts and in the circumstances of the case, the ITAT erred in law and on merits in deleting the penalty of Rs.73,85,322?- levied u/s 271(1)(c) of the Income Tax Act, 1961." 2. The reason for initiating penalty proceedings was that the AO in the assessment order framed on 29.12.2006 in respect of assessment year 2004-05 held the view that the assessee had falsely claimed bad debts of Rs. 2,05,86,262.75/- The assessee had given various advances to its suppliers which amounts to Rs. 2....
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....; 5. The Tribunal, however, while deleting the penalty has examined the matter from a different perspective altogether. It is observed that no doubt, the claim could not be written off as bad debt. At the same time, however, going by the nature of the transaction, viz., these were the loans and advances given by the assessee to the suppliers and were written off as unrecoverable, the same could have been allowed to be written off as business advance under Section 29 read with Section 37(1) of the Act, simply because the assessee made claim of deduction under a wrong head, viz., treating it as bad debt would not mean that the claim was false and therefore, penalty could not be imposed. This discussion is contained in the following paragra....
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....t been examined at all. The learned counsel has relied on various case laws. In our view, the assessee had made proper disclosure of facts. The amount has been disallowed not as business advance, which was the actual claim of assessee but the same has been disallowed as bad debt on an impression that it was not included in the income of all the earlier years whereas there is no said requirement for allowability of business advances. Penalty should not be levied merely because it is lawful to do so, has been held by Hon'ble Supreme Court in the case of Hindustan Steels Ltd., 83 ITR 26. Relying on these facts and authorities, we hold that the penalty u/s 271(1) (c) is not impossible in assessee's case, which is deleted." 6. After hearing t....
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....rading loss need not necessarily be a bad debt. There may be a bad debt which may not fall within the purview of Section 36(1)(vii) of the Act, but may well be regarded as one eligible for deduction incurred in the course of carrying on business will come under that category and will naturally enter into computing the net total income as the real profit chargeable to tax cannot be arrived at without setting off legitimate trading loss. 8. On these facts, it is apparent that the claim was neither mala fide nor false. It was a bona fide claim preferred by the assessee, who had also disclosed all the facts relating to and material to the computation of his income. In these circumstances, the assessee fulfilled both the conditions to be outs....