2013 (5) TMI 747 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee submitted that he had claimed deduction only on account of wrong interpretation of u/s. 36(2) - Held that - As seen in the light of the decision of Price Waterhouse Coopers Pvt. Ltd. (2012 (9) TMI 775 - SUPREME COURT) and Zoom Communication P. Ltd. (2010 (5) TMI 34 - DELHI HIGH COURT) wherein held that absence of due care does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income, thus concluded that since all the necessary facts with respect to the claim of disallowance and deductions were furnished in the return income the fact that the disallowance has been made does not call for levy of penalty us/ 271(1)(c). Thus penalty levied by the AO cancelled. In favour of assessee.

Summary

Issues:
1. Disallowance of bad debt claimed by the assessee.
2. Levy of penalty under section 271(1)(c) of the Act.

Issue 1: Disallowance of Bad Debt Claimed by the Assessee:
The case involved the disallowance of a bad debt claimed by the assessee related to the unrealized amount from the sale of a factory shed. The Assessing Officer contended that the original transaction was not a trading transaction, and thus the bad debt claim was a capital loss and not allowable. The assessee argued that since the profit from the sale of the asset had already been offered to tax, the unrealized amount rightfully qualified as a bad debt. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that only a loss of revenue nature could be claimed as a bad debt. The judgment cited legal precedents emphasizing the importance of disclosing income correctly and completely to avoid penalties for inaccurate particulars of income.

Issue 2: Levy of Penalty under Section 271(1)(c) of the Act:
The Assessing Officer imposed a penalty under section 271(1)(c) of the Act on the disallowed bad debt claim. The assessee appealed against this penalty, arguing that the claim was made based on a genuine interpretation of the law and that the necessary details were disclosed in the return of income. The assessee relied on legal precedents, including a Supreme Court decision, to support the argument that inadvertent errors or genuine beliefs do not constitute grounds for penalty under the Act. The tribunal considered the facts and legal principles presented, ultimately concluding that since all relevant facts were disclosed in the return of income and the disallowance did not warrant a penalty under section 271(1)(c) of the Act, the penalty levied by the Assessing Officer was canceled.

In summary, the judgment addressed the disallowance of a bad debt claimed by the assessee and the subsequent levy of a penalty under section 271(1)(c) of the Act. The tribunal ruled in favor of the assessee, emphasizing the importance of disclosing income accurately and completely while considering legal precedents that support the cancellation of penalties in cases of genuine interpretation errors or inadvertent mistakes.