2010 (5) TMI 665 - AT - Income Tax

Penalty u/s 271 - disallowance for bad and doubtful debts - According to the AO, the assessee committed the default of concealment of its income due to furnishing inaccurate - CIT(A) confirmed penalty levy HELD THAT - The assessee is a Government company having professional assistance in computation of its income, and its accounts are compulsorily subjected to audit. In the absence of any details/evidence from the assessee, we fail to appreciate how such deductions could have been left out while computing the income of the assessee company and how these escaped the attention of the auditors of the company. Since the onus placed upon the assessee to explain the difference in the returned income and finally assessed income has not been discharged, in terms of Explanation 1(B) to section 271(1)( c ), the amount added in computing the total income is deemed to represent income in respect of which particulars have bean concealed. The ld. AR on behalf of the assessee has not referred us to any material so as to enable us to take a different view in the matter. We, therefore, have no alternative but to uphold the order of the ld. CIT (A) insofar as levy of penalty on the amount in relation to claim for deduction of provision for bad and doubtful debts and provision for diminution in value of investments, is concerned. Disallowance of 1 per cent of administrative expenses - We are of the opinion that levy of penalty of the aforesaid disallowance made by the AO at the rate of 10 per cent of the total expenses and reduced to 1 per cent by the ld. CIT(A) is not justified. The provisions of section 271(1)(c) are not attracted in cases where the income of an assessee is assessed on estimate basis and additions are made therein. CIT v. Sangrur Vanaspati Ltd. 2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT . The decisions in the case of Sahyog Sahakari Shram Samvida Samiti Ltd. 2007 (5) TMI 281 - ITAT LUCKNOW-A and Raj Bans Singh s case 2004 (8) TMI 73 - ALLAHABAD HIGH COURT support this view.

Issues Involved:
1. Penalty under section 271(1)(c) for concealment of income or furnishing inaccurate particulars.
2. Justification for the levy of penalty on disallowance of provision for bad and doubtful debts.
3. Justification for the levy of penalty on disallowance of provision for diminution in value of investments.
4. Cancellation of penalty on estimated disallowance under section 14A.

Detailed Analysis:

1. Penalty under section 271(1)(c) for concealment of income or furnishing inaccurate particulars:
The primary issue is whether the assessee concealed income or furnished inaccurate particulars, thus attracting penalty under section 271(1)(c). The Tribunal emphasized that both concealment and inaccuracy pertain to "particulars of income," meaning facts leading to the correct computation of income. The Tribunal held that the penalty provisions operate when there is a failure to disclose fully or truly all the particulars, leading to an incorrect computation of income. The Tribunal noted that the assessee's incorrect claims for deductions were not supported by any provision of law, and the explanations provided were neither substantiated nor bona fide, thereby justifying the imposition of penalty.

2. Justification for the levy of penalty on disallowance of provision for bad and doubtful debts:
The Tribunal upheld the penalty on the disallowance of the provision for bad and doubtful debts amounting to Rs. 1,62,81,557. The Tribunal found that the assessee's claim was in express violation of section 36(1)(vii) of the Act, which requires bad debts to be written off as irrecoverable in the accounts. The explanation introduced by the Finance Act, 2001, retrospectively effective from 1-4-1989, clarified that provisions for bad and doubtful debts are not deductible. The Tribunal concluded that the assessee, being an established company assisted by reputed professionals, could not claim ignorance of such a fundamental provision. The Tribunal also noted that the assessee did not revise the computation statement during assessment proceedings, indicating a lack of bona fide belief in the claim.

3. Justification for the levy of penalty on disallowance of provision for diminution in value of investments:
The Tribunal confirmed the penalty on the disallowance of the provision for diminution in value of investments amounting to Rs. 21,98,638. The Tribunal rejected the assessee's argument that the RBI directions for prudential norms override the Income-tax Act, citing the Hon'ble Madras High Court's decision in T.N. Power Finance & Infrastructure Development Corpn. Ltd. v. Jt. CIT, which held that RBI directions cannot override the mandatory provisions of the Income-tax Act. The Tribunal found that the assessee's claim lacked any legal basis and was not supported by any provision in the Act, thereby justifying the imposition of penalty for furnishing inaccurate particulars.

4. Cancellation of penalty on estimated disallowance under section 14A:
The Tribunal upheld the CIT(A)'s decision to cancel the penalty attributable to the estimated disallowance of Rs. 9.91 lakhs under section 14A. The Tribunal noted that penalty provisions under section 271(1)(c) are not attracted in cases where income is assessed on an estimate basis, citing the decision in CIT v. Sangrur Vanaspati Ltd. The Tribunal agreed that there was no furnishing of inaccurate particulars or concealment of information in this regard, thus supporting the cancellation of the penalty.

Conclusion:
The Tribunal dismissed both the appeals, confirming the levy of penalty on disallowances related to the provision for bad and doubtful debts and the provision for diminution in value of investments, while upholding the cancellation of penalty on the estimated disallowance under section 14A. The Tribunal emphasized the importance of accurate and bona fide claims in tax returns and the consequences of failing to meet these standards.

← Previous Next →