TaxTMI 
TaxTMI 
2016 (5) TMI 1142
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.... are concerned with regard to the first disallowance. 4. The assessee has made a provision for bad and doubtful debts for a sum of Rs. 35.50 crores. This provision was disallowed by the AO. The ld.AO has initiated penalty proceedings under section 271(1)(c) of the Act. A show cause notice under section 271(1)(c) r.w.s. 274 was issued and served upon the assessee. It emerges out from the record that during the course of assessment proceedings, the ld.AO has confronted the assessee to explain as to how it has claimed bad debts of Rs. 35.50 crores in the account. The assessee has given the following reply to the AO in the assessment proceedings: "The company is engaged in the business of manufacturing of non-edible oil and selling the same in the export/domestic market. In the course of export sale, the company used to store the goods at Kandla in the tanks owned by Naranbhai P.Patel P.Ltd. (NPPL). The company came to know during A.Y. 98-99 that NPPL has sold away the goods stored by the company without the company's knowledge and therefore the value of such goods amounting to Rs. 37.07 crore was credited to sales account and debited to NPPL. Out of Rs. 37.07 crore Rs. 1.84 cro....
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.... Now coming to the merits of appeal. In this connection, the relevant paras of the written submissions dated 15-07-2010 filed by the A. R. of the appellant are reproduced hereunder: The Id. A.O. has levied the penalty of Rs. 12,42,50,000/- under section 271(1)(c) on the ground that the claim for provision for bad and doubtful debts were wrongly made. In this connection, it may please be-noted that the assessee made a provision of Rs. 35.50 Crore on account of bad and doubtful debts. This was stated in P & L A/c. distinctively and clearly (Annual Report enclosed). The same was claimed as deduction following the Gujarat High Court decision in the case of Sarangpur Cotton Mfg. Co. Ltd. Vs. CIT 143 UTR 166. The Gujarat High Court held in the said case that the provision for bad and doubtful debt is allowable as deduction. The Finance Act, 2001 amended Section 36(1)(vii) whereby the provision for bad and doubtful debt is not allowable as deduction with restrospective effect from 01-04-1989 and therefore at the time of assessment, the claim for provision for bad and doubtful debt was withdrawn as can be seen from para No. 4 of assessment order. It may please be noted that claim for....
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.... does not bring any material on record to prove that the claim was not genuine. In fact, it should be noted that the assessee did not agitate about the genuineness of the claim since it was withdrawn on the ground of retrospective amendment. The A.O. has not discharged the burden. The penalty cannot be levied only on the basis of finding in the assessment order. He may take the assistance of the finding in the assessment order but he has to bring some material on record. In the absence of such material, the penalty order is bad in law as held by SC in the cases (i) Anantharam Versinghaiah & Co. vs. CIT 123 ITR 457 (SC) and (ii) CIT vs. Khoday Enwarsa & Sons 83 ITR 369 (SC). - No specific charge : The attention is drawn to para No.5 of penalty order as under :- "In view of the facts discussed here above and the fact discussed elaborately in the assessment, it is established that the assessee has concealed particulars of its income as a/so furnished inaccurate particulars of income. The assessee company has failed to substantiate the claim and assessee has not furnished any convincing explanation in connection with the default of furnishing inaccurate particulars of its inco....
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....on of levy of penalty does not arise in view of restrospective amendment. - It therefore follows that the explanation furnished by the assessee is substantiated and that the explanation is bonafide, therefore the question of levy of penalty does not arise in view of the Delhi High Court judgment referred to above. 5.2. In addition to the above, during the course of appeal proceedings, the A. R. filed further written submissions dated 09- 06-2011. The relevant paras of the same are reproduced hereunder :- - The income-tax return for A.Y. 1999-2000 was submitted on 31-12-1999. The assessee company claiamed the provision for bad and doubtful debts of Rs. 35.50 crore following the Gujarat High Court decision in the case of Sarangpur Cotton Mfg. Co. Ltd. Vs. CIT 143 ITR 166 as per section 36(1)(vii). Section 36(1)(vii) on the date of filing of the return i.e. on 31-12-199 as under :** "36(1)(vii) subject to the provisions of sub-section (2), the amount of (any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year)" It therefore follows that the claim of the assessee was as per law. However, Finance Act, 2001 whic....
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....he claim was withdrawn in view of restrospective amendment. The explanation is bonafide, therefore the penalty cannot be levied." 7. The ld.CIT(A) has allowed the appeal of the assessee and deleted the penalty. 8. Before us, the ld.DR relied upon the order of the AO. He took us through the finding of the AO recorded during the course of assessment proceedings. He pointed out that search was conducted at premises of the assessee on 24.2.1999. Survey was carried out at the premises of M/s.Naranbhai P. Patel P. ltd. From the finding of the survey team, it was established that there was no shortage found at Kandla and no goods were dispatched to Kandla by the assessee. Thus, the claim of the assessee was not proper. 9. On the other hand, the ld.counsel for the assessee made two fold submissions. In his first fold of submissions, he has submitted that penalty order was time-barred. It was not passed within six months from the date of ITAT order received by the CIT(A). As per section 275A, the AO was required to pass penalty order within six months. The ld.CIT-DR pointed out that jurisdiction over the assessee rests with the CIT-III, Ahmedabad. Order was served on CIT-II, Ahmedabad. ....
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....tal income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 11. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for conce....