2011 (5) TMI 851 - AT - Income Tax

Penalty u/s 271(1)(c) - Penalty was imposed in respect of disallowance of deduction claimed u/s 43B and on account of provision for doubtful debts debited in the books of account - As per assessee penalty was not justified. HELD THAT - Regarding the penalty imposed on provision for doubtful debt as submitted by assessee that disallowance is on the basis of the Explanation inserted in section 36(1)(vii). Explanation was inserted by the Finance Act 2001 with retrospective effect from April 1 1989. Since the return of income was filed by the assessee on November 30 1998 at the time of filing of return of income the claim of the assessee was justified and hence for further disallowance as per the amended provisions penalty is not justified. The ld DR supported the orders of authorities below on this aspect of the matter. Regarding deduction u/s 43B We have noted that none of the decisions cited by DR for the Revenue is of any help to the Revenue in the present case. Full particulars were disclosed by the assessee in the computation of income enclosed with the return of income. In our considered opinion the stand taken by the assessee at the time of filing of return of income was a possible and plausible view and therefore the penalty is not justified. The judgment of the hon ble apex court rendered in the case of COMMISSIONER OF INCOME-TAX VERSUS RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT held that mere making of a claim by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee and such a claim made in the return of income cannot amount to concealment of income or furnishing of inaccurate particulars of income unless it is found that any details supplied by the assessee in this return were found to be incorrect or erroneous or false. In our considered opinion this judgment of the hon ble apex court supports the case of the assessee in the present case and respectfully following this judgment we delete the penalty - Decision in favour of Assessee

Issues Involved:
1. Jurisdiction and validity of the penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Penalty in respect of disallowance of deduction under section 43B of the Act.
3. Penalty in respect of disallowance of deduction for provision for doubtful debts.

Detailed Analysis:

1. Jurisdiction and Validity of the Penalty:
The assessee contested that the Commissioner of Income-tax (Appeals) erred in not deleting the penalty of Rs. 5,75,60,132 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961. The assessee argued that no satisfaction regarding the concealment of income or furnishing of inaccurate particulars was recorded in the assessment order. The Commissioner of Income-tax (Appeals) held that the direction to initiate penalty proceedings constituted satisfaction for imposing the penalty following the insertion of sub-section (1B) to section 271 of the Act.

2. Penalty in Respect of Disallowance of Deduction Under Section 43B:
The assessee claimed a deduction of Rs. 16,42,77,522 under section 43B for Modvat credit on components/CVD on inputs, which was disallowed and upheld by the Tribunal. The assessee argued that:
- No inaccurate particulars or incorrect facts were furnished.
- The issue was debatable with two possible views.
- The disallowance was sustained on bona fide grounds.
- The deduction was available in succeeding years.
- A substantial question of law regarding the disallowance had been admitted by the High Court, making the penalty unsustainable.

The Tribunal noted that the assessee disclosed full facts and particulars in the computation of income. The claim was based on an existing order of the Commissioner of Income-tax (Appeals) in the case of Maruti Udyog Ltd. and was supported by a subsequent Tribunal decision in the case of Honda Siel Power Products Ltd. The Tribunal concluded that the claim was a bona fide legal claim, and the penalty was not justified.

3. Penalty in Respect of Disallowance for Provision for Doubtful Debts:
The assessee claimed a deduction of Rs. 1,80,000 for provision for doubtful debts, which was disallowed based on the Explanation inserted in section 36(1)(vii) by the Finance Act 2001 with retrospective effect from April 1, 1989. The assessee argued that:
- The claim was made based on the legal position/judicial precedents at the time of filing the return.
- No inaccurate particulars or incorrect facts were furnished.
- The issue was debatable with two possible views.
- The explanation offered was bona fide.
- All material facts were fully disclosed.

The Tribunal found that the claim was made in good faith based on the legal position at the time of filing the return. The subsequent retrospective amendment did not justify the imposition of the penalty.

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not justified in the case of disallowance under section 43B and for the provision for doubtful debts. The Tribunal emphasized that the claims were bona fide and supported by existing legal precedents and orders. The appeal of the assessee was allowed, and the penalty was deleted. The judgment of the Supreme Court in the case of CIT v. Reliance Petroproducts Ltd. was cited, supporting the principle that mere making of a claim does not amount to furnishing inaccurate particulars or concealment of income.

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