2014 (5) TMI 962 - AT - Income Tax

Imposition of penalty u/s 271(1)(c) of the Act Proper explanation made - Bad debts written off - Held that - The address given by the AO in the penalty proceedings is per M/s Va Tech Escher Wyss Flovel Ltd., 13/1, Mathura Road, Faridabad and the address as mentioned in the impugned order at column No-4 is Va Tech Hydra India Pvt. Ltd, 49/5, Mathura Road, Vill-Prithla, Dis.-Palwal, Haryana accordingly the address having been changed is evident from the record - consistently the assessee has claimed that the amounts which were claimed as written off were actually advances made to its suppliers whose names and particulars numbering -20 in total were provided to the AO - the claim put forth was for bad debts for which the assessee failed to provide any justification the addition was made, it is a fact that the addition was not challenged in the quantum proceedings. Relying upon CIT Vs. Sumangal Overseas 2011 (11) TMI 45 - DELHI HIGH COURT - The explanation is stated to be bonafide as assessee on facts had no motive to make a wrong claim as the income over the years has remained at Nil- Full particulars were filed and no inaccurate particulars were provided - penalty proceedings and quantum proceedings are separate and distinct - explanation offered in the penalty proceedings has to be considered by the authorities independently in the matrix of the requirements of Section 271(1)(c) - even on merits the bad debt claim could have been allowed as a trading loss the advances to the creditors have not been held to be sham transactions as they are coming from the earlier years - explanation offered by the assessee in the penalty proceedings is bonafide and deserves to be accepted as it is neither a case of filing of inaccurate particulars and nor is it a case of concealment - Relying upon Reliance Petro Products Ltd. 2010 (3) TMI 80 - SUPREME COURT - the explanation being bonafide deserves to be accepted and the order is set aside Decided in favour of Assessee.

Summary

Issues Involved:
1. Confirmation of penalty imposed under Section 271(1)(c) of the Income Tax Act.
2. Justification of bad debts written off claimed by the assessee.
3. Whether the assessee furnished inaccurate particulars of income.
4. Bona fide nature of the assessee's claim and explanation.

Detailed Analysis:

1. Confirmation of Penalty Imposed under Section 271(1)(c):
The primary issue revolves around the CIT(A) confirming the penalty of Rs. 3,94,200/- imposed by the AO under Section 271(1)(c) for the assessment year 2004-05. The penalty was levied on the grounds that the assessee had furnished inaccurate particulars of income by claiming bad debts written off without proper justification.

2. Justification of Bad Debts Written Off:
The assessee claimed bad debts amounting to Rs. 95,00,228/-, including Rs. 10,98,944/- related to creditors' miscellaneous balances. The AO disallowed this claim, stating that the assessee failed to justify how the conditions under Section 36(i)(vii) read with Section 36(2) were fulfilled. The AO initiated penalty proceedings, asserting that the assessee had filed inaccurate particulars of income.

3. Whether the Assessee Furnished Inaccurate Particulars of Income:
In the penalty proceedings, the assessee argued that the amounts written off were advances given to creditors for supplies and services, which had become irrecoverable. The assessee contended that these amounts were business expenditures allowable under Section 37. The CIT(A) upheld the penalty, but the Tribunal found that the explanation provided by the assessee was bona fide and that the claim, although disallowed, did not amount to furnishing inaccurate particulars of income.

4. Bona Fide Nature of the Assessee's Claim and Explanation:
The Tribunal considered the assessee's explanation that the claim was made in good faith and without any intent to conceal income or furnish inaccurate particulars. The Tribunal noted that the assessee's income remained at Nil despite the disallowance and that the advances to creditors were genuine business transactions from earlier years. The Tribunal relied on the jurisdictional High Court's judgment in CIT vs Sumangal Overseas Ltd., which stated that a bona fide claim, even if ultimately disallowed, does not attract penalty under Section 271(1)(c). The Tribunal also referenced the Supreme Court's decisions in CIT vs Reliance Petroproducts (P.) Ltd. and Price Waterhouse Cooper (P) Ltd vs CIT, which support the view that a bona fide claim does not constitute furnishing inaccurate particulars of income.

Conclusion:
The Tribunal concluded that the explanation offered by the assessee was bona fide and deserved to be accepted. The penalty imposed under Section 271(1)(c) was quashed, and the appeal of the assessee was allowed. The decision emphasized that penalty proceedings are distinct from quantum proceedings and that a bona fide claim, even if disallowed, does not warrant a penalty for furnishing inaccurate particulars of income.