2012 (7) TMI 426 - AT - Income Tax

Penalty in respect of fixed deposit written off - additions made was in respect of claim of bad debt - AO made the addition on the premise that the assessee is not engaged in financing business and the amount written off is a fixed deposit kept in the bank and at the best it represents a capital loss and is not admissible as revenue expenditure Held that - Assessee had genuinely suffered loss due to deposit kept in bank during the course of its business - every transaction the issue becomes debatable whether such loss is capital loss or revenue loss - a mere making of claim which is not sustainable in law, by itself, would not amount to furnishing of inaccurate particulars regarding income of the assessee. Such a claim made in a return not amounting to furnishing of inaccurate particulars - penalty is not leviable especially when the issue is debatable - assessee has not concealed any particulars of income or furnished any inaccurate particulars - penalty levied by the revenue on the issue of unrealizable fixed deposit kept in bank written off due to cessation of the functioning of the bank deleted

Summary

Issues:
Penalty confirmation for fixed deposit written off amounting to Rs.3,25,186.

Analysis:
The appeal was filed by the assessee against the order of the CIT(A) confirming the penalty in respect of a fixed deposit written off amounting to Rs.3,25,186. The assessee, engaged in the business of manufacturing plastic rolls, sheets, and caps cover, had filed its return of income for assessment year 2003-04. During scrutiny, an addition was made for the claim of bad debt of Rs.3,25,186, which was debited in the profit & loss account of the firm. The assessee explained that this amount was written off as it pertained to a fixed deposit made in a bank that had ceased to function. The AO disallowed the claim, stating it was a capital loss and not admissible as revenue expenditure. The AO initiated penalty proceedings and levied a penalty of 100% of tax sought to be evaded. The CIT(A) confirmed the penalty, noting that the appellant made a wrong claim of expenses and failed to prove it was an inadvertent mistake or a bonafide claim.

On appeal, the AR argued that the issue was debatable whether the loss on unrealizable fixed deposits was capital or revenue in nature. The AR also mentioned that the assessee did not appeal before the CIT(A) due to the small amount and to avoid prolonged litigation. Citing a Supreme Court decision in CIT Vs Reliance Petroproducts Pvt. Ltd., the AR requested the deletion of the penalty. The DR, however, supported the AO's order and the CIT(A)'s decision. The Tribunal observed that the assessee genuinely suffered a loss due to a deposit kept in a bank during its business operations. It noted that the nature of such losses could be debatable and referred to the Supreme Court decision cited by the assessee, which stated that making a claim not sustainable in law did not amount to furnishing inaccurate particulars. The Tribunal concluded that in such circumstances, where the issue is debatable and no concealment or furnishing of inaccurate particulars occurred, the penalty was not justified. Consequently, the penalty levied by the revenue on the unrealizable fixed deposit written off was deleted.

In conclusion, the Tribunal dismissed the appeal of the assessee and pronounced the order on 01-06-2012.