2011 (9) TMI 466 - AT - Income Tax

Penalty u/s 271(1)(c) - period of limitation - held that - Hon ble Madras High Court in the case of Rayala Corpn. (P.) Ltd. (2006 -TMI - 13212 - MADRAS High Court) has concluded that, There is no dispute in this case that the petitioner has filed an appeal before the Tribunal and the same is pending. In such a case, the limitation period for the levy of penalty will be as provided for under Section 275(1)(a), i.e., six months from the end of the month in which the order of the Tribunal is received by the Chief CIT. There cannot be any doubt on this aspect. Accordingly, this Court is of the view that the proviso to Section 275 (1)(a) of the Act, does not nullify the availability to the third respondent of the period of limitation of six months from the end of the month when the order of the Tribunal, Chennai, is received by the third respondent herein - Decided against the assessee. Penalty for wrong claim of deduction of provision for doubtful debts - held that - it is clear that the assessee has made a conscious claim under section 36(1)(vii), despite the retrospective amendment by Finance Act, 2001, w.e.f. 1st April 1989, wherein an explanation has been inserted clarifying that a provision for bad and doubtful debts made in the accounts of the assessee shall not be a part of any bad debt or part thereof written-off as irrecoverable in the books of account of the assessee. - Penalty Justified. Provisions for diminution in the value of investments - The undisputed facts are that, the assessee has not sold the shares in question and has claimed a notional loss. The loss was claimed on re-valuation of an asset. By no stretch of imagination, this can be called as a debatable issue. - Penalty justified. Provisions for premium on debenture - When the option to redeem the debenture is not exercised, the question of liability to pay premium does not arise. When an event has not occurred, there is no crystallization of liability and no loss can be allowed under the Act. Penalty justified.

Issues Involved:
1. Limitation for passing the penalty order under section 271(1)(c).
2. Provisions for doubtful debts.
3. Provisions for diminution in the value of investment.
4. Provisions for premium on redemption of debenture.
5. Depreciation on intangible assets (goodwill).

Detailed Analysis:

1. Limitation for Passing the Penalty Order:
The primary issue was whether the penalty order passed on 30th January 2009, was barred by limitation under section 275(1)(a) of the Income Tax Act. The assessee argued that the order was barred by limitation as the Commissioner (Appeals) had passed the order on 31st August 2004. However, the Tribunal referred to the proviso to section 275(1)(a) and the judgment of the Hon'ble Madras High Court in Rayala Corpn. (P.) Ltd., which clarified that the proviso applies only to orders passed by the Commissioner (Appeals) not appealed before the Tribunal. The Tribunal upheld the findings of the first appellate authority, confirming that the penalty order was within the period of limitation.

2. Provisions for Doubtful Debts:
The assessee claimed a deduction for provisions for doubtful debts under section 36(1)(vii), which was partly withdrawn during assessment proceedings due to a retrospective amendment. The Tribunal noted that the conditions under section 36(2) were not satisfied, making the claim under section 36(1)(vii) invalid. The alternative claims under sections 28 or 37(1) were also dismissed as the loss had not crystallized during the year, and the loss was not proven to be in the revenue field. The Tribunal concluded that the claim was not bona fide and was made without any basis, leading to the conclusion that the assessee had furnished inaccurate particulars of income.

3. Provisions for Diminution in the Value of Investment:
The assessee claimed a notional loss on the diminution in the value of investments without any actual sale of the shares. The Tribunal found this claim to be prima facie not allowable and not based on any provision of law. The Tribunal highlighted that the assessee did not carry this issue to further appeal, indicating that the issue was not debatable. The Tribunal concluded that the claim was not bona fide.

4. Provisions for Premium on Redemption of Debenture:
The assessee claimed a provision for premium on debenture, which the Tribunal found to be premature as the liability had not crystallized. The Tribunal noted that the liability would only arise if the debenture holder did not opt to convert the debenture into equity shares, which had not occurred. The Tribunal concluded that this claim was also prima facie wrong and not debatable.

5. Depreciation on Intangible Assets (Goodwill):
The assessee claimed depreciation on intangible assets, which was treated as goodwill in its annual accounts. The Tribunal found that the assessee had deliberately furnished inaccurate particulars by trying to show goodwill as other intangible assets to claim depreciation. The Tribunal concluded that this false claim could not be considered debatable or possible, and the assessee had furnished inaccurate particulars of income.

Conclusion:
The Tribunal confirmed the penalty under section 271(1)(c) for furnishing inaccurate particulars of income. The Tribunal dismissed the assessee's appeal, upholding the order of the Commissioner (Appeals). The Tribunal found that the claims made by the assessee were speculative, untenable, wholly without basis, and legally incorrect. The Tribunal emphasized that the issues were not debatable, and the assessee had consciously furnished inaccurate particulars of income.

← Previous Next →