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2016 (7) TMI 577 - ITAT DELHI

2016 (7) TMI 577 - ITAT DELHI - TMI - Levy of penalty u/s 271(1) (c) - provision for bad debts and loss on sale of fixed assets - Held that:- Merely submitting an incorrect claim in law for the expenditure would not amount to furnishing inaccurate particulars of income. It is undisputed that the impugned amounts were part of the schedules of the audited accounts and the AO noticed the omission from these accounts only. It is again undisputed that these accounts form a part and parcel of the retu .....

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to a case where charge against the assessee is furnishing of inaccurate particulars of income. Hence in light of the judicial precedents as aforesaid discussed we are unable to agree with the findings of the authorities below on the imposition of penalty on the issue of provision for bad debts and loss sale of fixed assets not added back to the computation of income by the assessee. - For allowability of the Write off of Bad Debts the assessee’s case gets a stronger footing from the decisio .....

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. Penalty deleted - Decided in favour of assessee. - ITA No.-989/Del/2013 - Dated:- 8-7-2016 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Assessee : Sh. Abhijit Roy, FCA For The Revenue : Sh. T.Vasanthan, Sr. DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: The present appeal has been preferred by the assessee against the order dated 17-12-2012 passed by the Ld. CIT (Appeals) - X, Meerut for AY 2003-04 wherein, the Ld. First Appellate Authority h .....

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so shown loss on sale of fixed assets of ₹ 10.40 lakhs, but in the computation of the taxable income, these amounts were not added back by the assessee. During the course of assessment proceedings, the assessee applied for rectification by filing a letter dated 06-12- 2005. The A.O. held that this attempt by the assessee company to rectify the mistake was not acceptable as the prescribed conditions for revising the return of income were not complied by the assessee and the amount of ₹ .....

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3.96 lakhs had been disallowed u/s 143(3) of the Act and subsequently penalty u/s 271(1)(c) of the Act was imposed on this addition. (iii) The A.O. further pointed out that an amount of ₹ 23,22,957/- was booked under the head legal and professional expenses for purchase and up-gradation of software, these amounts were actually capital in nature and accordingly, the amount of ₹ 17,42,218/- was disallowed as a revenue expense while depreciation @25% was allowed. Subsequently penalty u/ .....

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decisions of CIT vs. Zoom Communications P. Ltd. 191 Taxman 179 (Del) and CIT vs. Escorts Finance Ltd 328 ITR 44 (Del), it was clear that in this case the assessee had not provided true and complete particulars of income and that it was only after the case being examined under scrutiny that the assessee made an application for rectification and came forward with the submission that this amount had escaped the computation of income. Accordingly, the imposition of penalty on amount of ₹ 1,16 .....

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re not provided to the assessing officer for the year under appeal and that the amount had been disallowed after giving due opportunity to the assessee. The Ld. CIT (A) also noted that the ITAT had held in the assessee s own case that such debts were not allowable considering the fact that the nature of debts was not clear as to they being capital debts or trading debts. Accordingly, the imposition of penalty on this addition was also confirmed. On the third addition on which the penalty was imp .....

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nd willfully evaded tax and that since different views were possible, the assessing officer was not justified in imposing the penalty and accordingly, the penalty was directed to be deleted on this particular addition. 4. Aggrieved, the assessee is now in appeal before the Tribunal and has raised the following grounds of appeal - 1. The Learned CIT(A) erred in ignoring the voluntary revision of the computation by the appellant, and upholding the levy of penalty on two items of bona fide mistake .....

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written off , and that, on identical facts, its allowance had been upheld by the Learned CIT(A), Hon ble ITAT and the Hon ble Delhi High Court in the immediately preceding A.Y 2002-03. 3. The appellant begs leave to add, amend, modify or change its Grounds of Appeal before the final hearing. 5. The Ld. AR submitted that the disputed penalty on the first issue relates to the omission in adding back the by provision for bad debts and loss on sale of fixed assets. It is a routine addition that oug .....

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hat it would be unjustified to levy penalty for filing inaccurate particulars on such an apparent & bona fide Computation error of this nature, of not adding back Provision for Gratuity in the case of the return of a reputed professional firm of C.A s. 6. On the issue of levy of penalty on unsubstantiated bad debts written off, it was submitted that both the A.O and the Ld. CIT (A) had disallowed the amounts pertaining to Sundry Balances/ debtors on the grounds of the same not having been es .....

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f bad debts is written off in the books of account. This view has been followed thereafter. As regards the second limb i.e. the details and identity of the debtors, the Ld. AR placed reliance on the judgement of the Hon ble Delhi High Court dated 12.4.10 in the case of CIT v Modi Telecommunications Ltd. 325 ITR 291 (Delhi wherein it was found that old Balances relating to erstwhile customers to whom Pagers had been sold were no longer identifiable/ traceable, and had been written off as Bad Debt .....

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R also placed a Chart showing that there is no conclusive finding by any authority (except the Hon ble High Court for the A.Y 2002-03), as to the amount was disallowable and even if so, for what reason. The Ld. AR placed reliance on CIT v Bacardi Martini India Ltd (2007)288 ITR 585(Delhi), and read out para15 thereof which reads as under; There are cases where expenditure is disallowed by the Assessing Officer and it is allowed by the CIT (A). It is again disallowed by the ITAT and in appeal all .....

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210.20 lacs, for which details were readily available to the assessee at the time of assessment, was accepted by the AO. As regards the details for the balance ₹ 63.96 lacs, they could not be readily produced due to the antiquity of the transactions and the assessee not being able to recover all past documents and records from the archived records from its premises which had been shifted and split a few times. This did not mean that the transactions of Income resulting in these Debtors had .....

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e-stated reasons does not colour the writeoffs as being a subject matter of concealment. 8. It was further submitted that the ITAT decided against the assessee in the quantum appeal on this issue. However, for the earlier AY 2002-03, the ITAT has upheld the allowance by the Ld. CIT(A) of the entire amount of write off of Bad Debts as claimed at ₹ 93,40,308/- by the assessee and the Hon ble Delhi High court in ITA No. 1332/2009 dt. 10.12.2009, too upheld the findings of the ITAT, allowing t .....

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or the Ld. CIT (A). 9. In response, the Ld. DR submitted that the penalty has been imposed purely on facts and that no legal issues are involved. It was also submitted that the case laws relied upon by the assessee were distinguishable on facts. It was submitted that the ITAT had also confirmed the disallowance pertaining to the write off of debts in the quantum appeal and hence the penalty was rightly imposed. It was further submitted that the assessee had failed to prove its bona fides after .....

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on for bad debts and ₹ 10.40 lacs being loss on sale of fixed assets to the taxable income in the computation sheet. The assessee s claim is that the mistake was bonafide and the assessee filed a revised computation as soon as the omission was discovered during the assessment proceedings and hence the penalty was not leviable. On the other hand, it is the department s contention that since the omission was sought to be rectified only after detection, the bona fides of the assessee cannot b .....

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g Officer is not bound to levy penalty automatically simply because the quantum addition has been sustained. Also in case of CIT v. Khoday Eswara (83 ITR 369) (SC), incidentally reported in same ITR Volume, it is held that penalty cannot be levied solely on basis of reasons given in original order of assessment. The Hon ble Supreme Court has recently reiterated the law in case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 by holding in Para 62 that finding in assessment proceedings cannot aut .....

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n if the Explanations are taken recourse to, a finding has to be arrived at - having regard to clause (A) of Explanation - that the Assessing Officer is required to arrive at a finding that the explanation offered by the assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanation is not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona .....

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cer: he is required to arrive at a satisfaction so as to show that there is primary evidence to establish that the assessee had concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the Department. While considering whether the assessee has been able to discharge his burden the Assessing Officer should not begin with the presumption that he is guilty. Since the burden of proof in penalty proceedings varies from that in the assessment proceedings, a finding .....

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e separate and distinct. Findings in Assessment proceedings don t operate as res judicata in penalty proceedings. For this proposition reliance is placed on the decision in CIT vs. Dharamchand L. Shah (1993) 204 ITR 462 (Bom). In Vijay Power Generators Ltd vs. ITO (2008)6 DTR 64 (Del) it was held that It is well settled that though they constitute good evidence do not constitute conclusive evidence in penalty proceedings. During penalty proceedings, there has to be reappraisal of the very same m .....

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ry disclosures were made and that on the basis of material disclosed there cannot be a case of concealment of income or furnishing inaccurate particulars of income. Further if there is any material or additional evidence which was not produced during assessment proceedings same can be produced in penalty proceedings as both assessment and penalty proceedings are distinct and separate. In CIT vs. M/s Sidhartha Enterprises (2009) 184 Taxman 460 (P & H)(HC) it was held that the judgment in Dhar .....

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se the assessee-firm engaged in providing multi-disciplinary management consultancy services filed its return of income along with tax audit report. A provision towards payment of gratuity was claimed as a deduction which was not allowable, thereby leading to underassessment of income. The Assessing Officer imposed a penalty under section 271(1)(c). The CIT (A) upheld the levy of the penalty; ITAT partially reduced it, taking a view that the assessee had made a mistake which could be described a .....

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, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The caliber and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income." 12. The Hon .....

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ssee was on account of a bona fide mistake and in such circumstances the levying of penalty was not justified. 13. At this juncture it may be apposite to refer to the decision of the Hon ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322, wherein the court while interpreting the provisions of section 271(1)(c) of the Act, has held that a glance at the said provision would suggest that in order to be covered by it, there has to be concealmen .....

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to whether in that case, as a matter of fact, the assessee had given inaccurate particulars. The court noted that as per Law Lexicon, the meaning of the word "particular" is a detail or details (in the plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particular" used in section 271(1)(c) would embrace the meaning of the details of the claim made. The court further observed that in Webster's Dictionary, the word "inaccur .....

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und to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect and accordingly, held that, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The court repelled the contention raised by the counsel for the revenue that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". The court held that in order to e .....

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t is the only document, where the assessee can furnish the particulars of his income. 14. Reverting to the facts of the present case, the Assessing Officer, in the penalty order, has observed that the addition/disallowance made on account of provision of bad debts and write off of fixed assets were found out by the Assessing Officer only during the course of assessment proceedings and had not been disclosed by the assessee. He, accordingly, has formed the opinion that the assessee has furnished .....

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ately offered to rectify the mistake on detection is also undisputed. It is only that the claim of the bona fide of the assessee was not accepted by the department. It is also important to note that Explanation 1 to section 271(1)(c) cannot be applied where charge against the assessee is furnishing of inaccurate particulars of income since it provides a deeming fiction qua concealment of particulars of income only and consequently cannot be extended to a case where charge against the assessee is .....

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However, for the earlier AY 2002-03, the ITAT has upheld the allowance by the Ld. CIT(A) of the entire amount of write off of Bad Debts as claimed at ₹ 93,40,308/- by the assessee and the Hon ble Delhi High court in ITA No. 1332/2009 dt. 10.12.2009, too upheld the findings of the ITAT, allowing the write off of the entire amount of Write-off of ₹ 93.40 lacs u/s 36(1)(vii) read with section 36(2). Thus, the entire question of allowability of the Write off of Bad Debts has hinged upon .....

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depending on the facts of the case every year. In the year under consideration, a co-ordinate Bench of the ITAT has given a finding that the assessee has not been able to establish as to whether these debts were capital debts or trade debts and has held that the amounts claimed were not deductible. However, it is our considered opinion that the addition/disallowance has not arisen on account of any actual, blatant, proven furnishing of inaccurate particulars of income on the part of the assesse .....

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