2013 (10) TMI 773 - AT - Income Tax

Penalty u/s 271(1)(c) of the Income Tax Act - The sum of Rs. 6,86,939/- was levied as penalty u/s. 271(1)(c) of the Act in respect of disallowance of bad debts of Rs. 11,58,112/-, disallowance out of membership fee of Rs. 4,80,000/- and addition of Rs. 2,76,700/- in respect of non moving sundry creditors. On appeal Ld. CIT(A) deleted the aforesaid penalty Held that - No specific error in the order of Ld. CIT(A) could not be pointed out by Ld. DR - No material was brought on record to show that the payment of Rs. 5 lacs as membership fee by the assessee was not genuine. The issue whether expenditure is a capital or a revenue expenditure is largely debatable issue and only because a different view in respect of nature of expenditure was adopted by the Department does not entitle the AO to levy penalty u/s. 271(1)(c) of the Act. Further no material was brought to show that non moving sundry creditors balance of Rs. 2,76,700/- was bogus or even any material to show that the same was income of the assessee of the year under consideration - In absence of any material to show that the said amount was actually income of the assessee of the year under consideration, in our considered, view levy of penalty u/s. 271(1)(c) in respect of the said amount was not justified. Further in respect of amount of Rs. 11,58,112/- which was claimed by the assessee as bad debt, no material was brought before us to show that the claim was false. Reliance has been placed upon the judgment in the case of Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT , wherein it was held that merely because a deduction claimed by the assessee was found to be not allowable, does not entitle the Department to levy penalty u/s. 271(1)(c) - Decided against the revenue.

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act.
2. Disallowance of bad debts.
3. Disallowance of membership fees.
4. Addition on account of write back of non-moving sundry creditors.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act:
The core issue in this appeal was whether the CIT(A) erred in deleting the penalty of Rs. 6,86,939/- imposed under Section 271(1)(c) of the Act. The Assessing Officer (AO) had levied this penalty for the alleged concealment of income and furnishing inaccurate particulars of income. The CIT(A) deleted the penalty, reasoning that the AO did not have a proper satisfaction for imposing the penalty and that the disallowances and additions were based on disclosed facts and figures. The CIT(A) cited various judicial decisions, including the Supreme Court's ruling in Reliance Petroproducts Pvt. Ltd., which held that merely making an incorrect claim does not amount to concealment of income.

2. Disallowance of Bad Debts:
The AO disallowed Rs. 11,58,112/- under the head of bad debts, which the assessee claimed as a deduction. The assessee argued that the bad debts were justified as they had charged interest on the respective debit balances from the financial year 1995-96 to 1999-2000 and had also deducted TDS. The CIT(A) accepted the assessee's contention that all facts and figures were disclosed, and therefore, the claim was not an act of concealing income or furnishing inaccurate particulars. The Tribunal upheld this view, noting that no material was brought forward to show that the claim was false.

3. Disallowance of Membership Fees:
The AO disallowed Rs. 4,80,000/- under the head of membership fees, arguing that the sum paid was for a 25-year membership, and only 1/25th of the amount should be allowed as a deduction. The assessee contended that the expenditure was on revenue account and justified by commercial expediency. The CIT(A) found the assessee's explanation reasonable and noted that the issue of whether an expenditure is capital or revenue is debatable. The Tribunal agreed with the CIT(A), emphasizing that a different view by the Department does not justify a penalty under Section 271(1)(c).

4. Addition on Account of Write Back of Non-moving Sundry Creditors:
The AO added Rs. 2,76,700/- to the income, treating it as non-moving sundry creditors. The assessee argued that these balances were written back to the profit and loss account as necessary and that some balances were written back in the subsequent year and offered for tax. The CIT(A) accepted that the assessee's judgment should be honored and found no concealment or furnishing of inaccurate particulars. The Tribunal upheld this view, stating that no material evidence was provided to show that the balances were bogus or income of the year under consideration.

Conclusion:
The Tribunal confirmed the CIT(A)'s order deleting the penalty under Section 271(1)(c), agreeing that there was no concealment of income or furnishing of inaccurate particulars by the assessee. The appeal of the revenue was dismissed, and the order was pronounced on October 10, 2013.

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