2017 (11) TMI 1540 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of bad debts - Held that - It is undisputed that the debts had been written off by the assessee. There is only a difference of opinion between the assessee and the AO as to whether the write off was permissible or not. The assessee has taken a legally acceptable stand and the AO has not brought any adverse evidence on record to establish that the debts had actually not become bad. AO has only drawn inference from running accounts of the debtors that given the circumstances the debts could not have become bad. However this is not permissible under the amended provision of section 36(vii).Moreover it is not a case of dispute in quantum of disallowance but a dispute relating to the sustenance of penalty. The AO has imposed penalty for furnishing inaccurate particulars. In the instant case it cannot be said that the assessee had withheld any relevant information regarding bad debts written off from the AO. With regard to the provisions of section 271 (1) (c) of the Act pertaining to penalty the Hon ble Apex court in CIT versus Reliance Petroproducts (P) Ltd (2010 (3) TMI 80 - SUPREME COURT ) has laid down that making of a claim by the assessee which is not sustainable will not amount to furnishing inaccurate particulars. - Decided in favour of assessee.

Summary

Issues:
- Appeal against deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2002-03.

Detailed Analysis:

Issue 1: Deletion of Penalty by CIT (Appeals)
The Department filed an appeal against the deletion of penalty amounting to Rs. 73,92,600 imposed under section 271(1)(c) of the Income Tax Act, 1961 by the Commissioner of Income Tax (Appeals) for assessment year 2002-03. The penalty was imposed due to the disallowance of bad debts claimed by the assessee, amounting to Rs. 2,07,07,549, in the profit and loss account. The Assessing Officer (AO) disallowed this amount and added it to the company's income, leading to the penalty imposition. However, the CIT (Appeals) deleted the penalty, prompting the Department to appeal to the ITAT.

Issue 2: Lack of Representation by Assessee
During the proceedings, none was present to represent the assessee. The case had been scheduled for multiple hearings, but the absence of the assessee led to the Department proceeding with the appeal ex parte against the assessee.

Issue 3: Justification for Penalty Imposition
The Department argued that the claim of bad debts by the assessee was unsubstantiated, as part of the debts were written off, part payments were received, and the remaining amounts were carried forward. The AO, supported by the Department, contended that the assessee's claim for bad debts was not supported by evidence, leading to the penalty imposition under section 271(1)(c) of the Act.

Issue 4: Legal Position and Interpretation
The ITAT analyzed the legal position post-amendment to section 36(vii) of the Act in 1989. It was noted that the assessee is not required to establish that the debt has actually become bad in the relevant year for claiming deduction. The key requirement is to write off the debt in the books treating it as bad. Citing relevant case law, including the decision in TRF Ltd versus CIT, the ITAT highlighted that the mere writing off of bad debts suffices for claiming deduction, and the AO's failure to provide evidence contradicting the write-off does not warrant penalty under section 271(1)(c).

Issue 5: Penalty Imposition for Furnishing Inaccurate Particulars
The ITAT emphasized that the AO's penalty imposition was based on the lack of substantiation regarding the bad debts, rather than the furnishing of inaccurate particulars. Referring to legal precedents and the provisions of section 271(1)(c), the ITAT concluded that the assessee's actions did not amount to furnishing inaccurate particulars, and the penalty was not justified.

In conclusion, the ITAT dismissed the Department's appeal, upholding the deletion of the penalty by the CIT (Appeals) based on the legal position, lack of evidence contradicting the write-off of bad debts, and the absence of inaccurate particulars furnished by the assessee.