2018 (9) TMI 1829 - AT - Income Tax

Penalty u/s 271(1)(c) - case selected for scrutiny - on the specific queries raised by the AO during the proceedings and subsequent hearings that the asssesee has admitted that it had wrongly claimed deductions on account of provision for slow moving inventory and on account of doubtful debts written off - HELD THAT - This is not a case of the assessee suo moto and voluntarily offering to tax an amount being doubtful debts written off and being provision for slow moving inventory written back. It was only on the case being selected for scrutiny and on the specific queries raised by the AO during the proceedings on 25.02.2005 and subsequent hearings that the asssesee has admitted that it had wrongly claimed deductions on account of provision for slow moving inventory and on account of doubtful debts written off. The contention of the assessee that it was under a belief that these provisions in question were disallowed in the earlier AY is not believable for the reason that, it is a matter of record that that assesee has not suo moto disallowed these provisions in the computation of income filed by it for the earlier Assessment Year. On the one hand wrong computations of income were filed for the earlier A.Y. The claim that on a belief that the assessee had suo moto disallowed provisions for the earlier year, deductions of the writebacks were claimed as not taxable in this year is not believable on the facts of this case. The order of assessment in this case has been framed with reference to revised return filed by the assesee and hence, in our view, the concealment of income or furnishing of inaccurate particulars of income have to be viewed with reference to this revised return of income and not to the original return of income as the revised return of income is a valid return of income. We are of the considered view that on the facts of this case the Explanation given by the assessee is not bonafide and the claims made are not inadvertent mistakes. The assessee in our view has furnished inaccurate particulars of income and hence penalty u/s 271(1)(c ) has been rightly levied by the Ld.AO and it has rightly been confirmed by the Ld.CIT(A). Coming to the initiation of penalty proceedings, the AO had initiated penalty proceeding at page 6 of his order which, in our view is valid initiation of proceedings. AO was right in levying penalty u/s 271(1)(c ) of the Act on the ground that the assessee has furnished inaccurate particulars of income and the First Appellate Authority has rightly upheld this order. - Decided against assessee

Issues Involved:
1. Sustaining penalty for concealment of income under Section 271(1)(c) for disallowance on account of write-back of provision for slow-moving inventory.
2. Sustaining penalty for disallowance on account of provision for bad and doubtful debts written off.
3. Sustaining penalty for unspent liabilities written back.
4. Allegation that penalty proceedings were initiated without recording adequate satisfaction.
5. Revenue's contention on cancellation of penalty related to disallowance of depreciation.
6. Cross Objection by the assessee on the merits of penalty levied for disallowance of depreciation.

Detailed Analysis:

1. Sustaining Penalty for Write-back of Provision for Slow-moving Inventory:
The assessee claimed a deduction of ?5,690,249 for the write-back of provision for slow-moving inventory, believing it was disallowed in the previous year. However, upon scrutiny, it was found that this provision was not disallowed in the prior year. The Tribunal held that the explanation given by the assessee was not bona fide and the claim was not an inadvertent mistake. Therefore, the penalty under Section 271(1)(c) was upheld for furnishing inaccurate particulars of income.

2. Sustaining Penalty for Provision for Bad and Doubtful Debts Written Off:
The assessee claimed a deduction of ?1,996,181 for bad and doubtful debts written off, which included an amount already claimed in the previous year. The Tribunal found that this was not a voluntary correction by the assessee but was discovered during scrutiny. The explanation provided by the assessee was not considered bona fide, and thus the penalty for furnishing inaccurate particulars of income was upheld.

3. Sustaining Penalty for Unspent Liabilities Written Back:
The ground related to unspent liabilities written back amounting to ?668,424 was considered infructuous as there was no levy of penalty on this amount. Therefore, this issue did not arise for consideration.

4. Allegation of Inadequate Satisfaction for Initiating Penalty Proceedings:
The Tribunal noted that the Assessing Officer had initiated penalty proceedings in the assessment order, which was considered valid. The Hon’ble High Court had already upheld the initiation of penalty proceedings and directed the ITAT to decide the issue on merits. Hence, the argument of inadequate satisfaction was dismissed.

5. Revenue's Contention on Cancellation of Penalty Related to Disallowance of Depreciation:
The Revenue appealed against the cancellation of penalty related to the disallowance of depreciation amounting to ?1,74,02,789. The Tribunal noted that the disallowance was deleted in the quantum proceedings by the Tribunal and upheld by the Hon’ble Delhi High Court. Therefore, the Revenue’s appeal was dismissed.

6. Cross Objection by the Assessee on Merits of Penalty Levied for Disallowance of Depreciation:
The assessee argued that no penalty was leviable as there was no concealment of income or furnishing of inaccurate particulars. The Tribunal, however, found that the explanation given by the assessee was not bona fide and upheld the penalty for furnishing inaccurate particulars of income. The cross-objection was dismissed in light of the decisions on the assessee’s and Revenue’s appeals.

Conclusion:
The Tribunal upheld the penalties levied under Section 271(1)(c) for the disallowance of write-back of provision for slow-moving inventory and provision for bad and doubtful debts written off, finding the explanations provided by the assessee not bona fide. The Revenue’s appeal against the cancellation of penalty for disallowance of depreciation was dismissed, and the cross-objection by the assessee was also dismissed. The Tribunal’s decision was consistent with the principles laid down by the Hon’ble Supreme Court and High Courts regarding the initiation and imposition of penalties under Section 271(1)(c).

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