2012 (7) TMI 35 - HC - Income Tax

Justification of deletion of penalty under section 271(1)(c) - provision for obsolescence - Disallowance of 25 per cent by AO - Held that - It is not in dispute that disallowance has been made by the Revenue only to the extent of 25 per cent. of the total claim on the ground that the old model could easily be sold in the market to the customers since the customers of this line also purchased old model even after launching new model in the market - as assessee s claim has not been fully rejected AO has not given any such finding that the assessee s claim was otherwise a false claim and the addition made by the AO could at best be considered due in difference of opinion between the assessee and the Department but cannot be said to be a claim of such a nature which could be considered to be false and in respect of which the penalty under section 271(1)(c) is to be levied - uphold the order of the learned CIT(A) in deleting the penalty - in favour of assessee.

Summary

Issues:
- Appeal against deletion of penalty under section 271(1)(c) of the Income-tax Act, 1961 for assessment years 2000-01 and 2001-02.
- Disallowance of foreign travel expenditure, provision for warranty, marketing expenditure, additions to closing stock, and provision for obsolescence.

Analysis:
1. Penalty under Section 271(1)(c) - Foreign Travel Expenses and Provision for Warranty:
- The Tribunal had ruled in favor of the respondent-assessee in the quantum proceedings regarding foreign travel expenses and provision for warranty. As the appeal by the Revenue was dismissed, penalty proceedings under section 271(1)(c) on these accounts were not sustainable.

2. Marketing Expenditure and Additions to Closing Stock:
- The matter of marketing expenditure and additions to closing stock was remanded by the High Court to the Income-tax Appellate Tribunal for a fresh decision. Subsequently, the Tribunal referred the matter to the Assessing Officer for reconsideration, making the penalty order under section 271(1)(c) on these accounts irrelevant.

3. Provision for Obsolescence:
- In the assessment year 2000-01, the Assessing Officer disallowed 25% of the provision for obsolescence due to lack of substantiating evidence. The Commissioner of Income-tax (Appeals) upheld this decision, leading to a penalty under section 271(1)(c) being imposed.
- However, in the subsequent assessment year 2001-02, a similar disallowance was reduced by the Commissioner of Income-tax (Appeals) to 25%. The Income-tax Appellate Tribunal held that the disallowance was an estimate and not based on a false claim, thereby deleting the penalty under section 271(1)(c) related to obsolescence.

4. Final Decision:
- The High Court dismissed the appeals, stating that no substantial question of law arose based on the reasoning provided by the Income-tax Appellate Tribunal. The dismissal of the appeals did not impact any potential penalty proceedings that might be initiated by the Assessing Officer following the Tribunal's remit order. The court clarified that it had not expressed an opinion on whether such penalty proceedings should be initiated.