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2009 (9) TMI 82 - AT - Income TaxPenalty u/s 271(1)(c) - TP Adjustment - assessee has not fully and truly disclosed the real operating cost and the comparable profit margin on the same as required u/s 92C and this resulted in suppression of income as well as higher claim of loss - whether the provision of doubtful debt on the facts of the case was an extraordinary item to be excluded from the operating cost? - CIT(A) in his appellate order has noted that necessary facts relating to the provisions of doubtful debts were disclosed to the Revenue authorities in various forums. HELD THAT:- If the sums are owed by the parent company become bad the same cannot be conclusively said to be a matter falling in ordinary course of trade; The fact that the assessee has accepted the addition and not challenged the same will not change this aspect. In our considered opinion it is certainly a debatable point. A point on which admittedly there can be two opinions. As per the AS-5 issued by the ICAI, extraordinary items are incomes or expenses that arise from events or transactions that are clearly distinct, from the ordinary activities of the enterprise and therefore, are not accepted to recur frequently or regularly. Hence, in the light of the aforesaid discussion whether the provision for doubtful debt on the facts of the case, can be said to be an extraordinary item warranting exclusion from operational cost is a debatable point. As noted that as against the sum owed to the assessee, the parent company had incurred larger amount in the formation of the assessee company which was to be cross-charged to the assessee. This sum was also cancelled along with the debt. If this sum was not cancelled against sums owed by the parent company, the assessee's cost would have been further loaded by a larger amount by the cross-charge for formation expenses. Thus there was a full disclosure by the assessee of all the relevant facts, we hold that the assessee's computation cannot be said to have been done, not in good faith and not with due diligence. Hence, no levy of penalty under s. 271(1)(c) is called for. As decided in the case of Hindustan Steel Ltd. vs. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Thus the case the assessee cannot be held liable for penalty under s. 271(1)(c)as his conduct is not mala fide or contumacious. Decided in favour of assessee.
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