2015 (12) TMI 1463 - AT - Income Tax

Penalty under section 271(1)(c) - disallowance/expenditure, namely, (i) claim of depreciation under block buildings ; (ii) loss on sale of current assets ; (iii) claim of bad debts ; (iv) investments written off ; (v) irrecoverable project expenses written off, on the ground that the assessee has furnished inaccurate particulars of income - Held that - Other than the claim made by the assessee with regard to five items of deduction, namely, claim of depreciation under block buildings, loss on sale of current assets, claim of bad debts, investments written off and irrecoverable project expenses written off, no fault has been found by the Assessing Officer in the particulars of income submitted by the assessee in its return. Therefore, this Tribunal is of the considered opinion that merely because the claim of the assessee was found to be not sustainable in law by the Assessing Officer, that cannot be a reason to say that the assessee has furnished any inaccurate particulars regarding its income. This Tribunal is of the considered opinion that the assessee has not furnished any inaccurate particulars regarding its income. In view of the judgment of the apex court in CIT v. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT the assessee cannot be by any stretch of imagination construed as to have furnished any inaccurate particulars of income. - Decided in favour of assessee

Issues Involved:
1. Claim of depreciation under the block "buildings"
2. Loss on sale of current assets
3. Claim of bad debts
4. Investments written off
5. Irrecoverable project expenses written off

Detailed Analysis:

1. Claim of Depreciation under the Block "Buildings":
The Assessing Officer (AO) levied a penalty on the depreciation claim of Rs. 84,20,996. The AO argued that the land was converted into stock-in-trade in 1994-95, but the buildings on the land continued as fixed assets with depreciation claimed. The AO contended that the sale proceeds of the land should be considered as business profit, and the building as a capital asset. The sale consideration of Rs. 95 crores was divided into Rs. 60 crores for land and Rs. 35 crores for the building. The AO disallowed the depreciation claim, adding Rs. 84,20,996 to taxable income, asserting that this constituted furnishing inaccurate particulars.

2. Loss on Sale of Current Assets:
The AO noted an entry of Rs. 2,08,14,610 in the profit and loss account for loss on sale of current assets, which was explained by the assessee as a provision for obsolete and irrecoverable current assets. The AO added this amount to the taxable income, suggesting that the assessee would not have admitted the addition without the AO's query, thus implying inaccurate particulars were furnished.

3. Claim of Bad Debts:
The assessee wrote off bad debts amounting to Rs. 5,26,59,000, debiting it to the profit and loss account. The AO found inconsistencies in the sundry debtors' figures, which did not match the claimed bad debts. The AO disallowed this claim, adding it to the taxable income, indicating that the claim was not substantiated and constituted furnishing inaccurate particulars.

4. Investments Written Off:
The assessee wrote off investments worth Rs. 4,09,09,000, representing the value of shares in a wholly-owned subsidiary. The AO argued that no transfer of shares took place, and thus, the claim could not be allowed as a capital loss. This was considered furnishing inaccurate particulars of income.

5. Irrecoverable Project Expenses Written Off:
The assessee claimed Rs. 5,43,83,000 as irrecoverable project expenses written off, arguing that these were cost overruns on fixed contract projects that could not be billed. The AO treated this as a capital loss, not a revenue loss, and added it to the taxable income, suggesting that the claim was inaccurate.

Tribunal's Findings:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to delete the penalty levied by the AO. The Tribunal relied on the Supreme Court's judgment in CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC), which held that merely making an incorrect claim does not amount to furnishing inaccurate particulars of income. The Tribunal noted that the assessee disclosed all particulars in the return and audit report, and the claims were debatable and disclosed in the notes on accounts.

The Tribunal found that the AO's reliance on Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 (SC) was misplaced, as the Supreme Court in Reliance Petroproducts had clarified that making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars. The Tribunal concluded that the assessee did not furnish inaccurate particulars of income, and thus, the penalty under section 271(1)(c) was not warranted.

Conclusion:
The appeal of the Revenue was dismissed, and the Tribunal upheld the deletion of the penalty, emphasizing that the assessee's claims, though disallowed, did not constitute furnishing inaccurate particulars of income. The Tribunal's decision was pronounced on September 16, 2015, at Chennai.

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