2016 (3) TMI 1018 - AT - Income Tax

Penalty made u/s.271(1)(c) - merger expenses - Held that - Assessee had shown a merger expenditure of ₹ 15,99,298/- in its profit and loss account and suo motu added it back in its computation statement. As per the Ld. AR, merger related expenditure to the extent of ₹ 5,14,240/- was accounted by the assessee under various other heads which came to light only during the course of verification. Nevertheless what we find is that even for this amount assessee was eligible for claiming 1/5th write off u/s.35DD of the Act. Thus at the best, claim can be considered to be erroneously made and not one done with any malafide intention or with any intention to conceal. Whether a particular expenditure can be related to merger cost itself is debatable. In our opinion, levy of penalty ought not have been done on such amount. Levy of penalty relating to prior period expenditure admittedly the Tribunal in assessee s appeal held the differential CST of ₹ 91,89,001/- to be an allowable claim. Vide the very same para it also held that differential property tax of ₹ 23,46,492/- to M/s. Nagar Nigam paid was also an allowable claim. CIT (A) at page 5 of his order in assessee s appeal against levy of penalty, deleted the penalty levied of ₹ 1,49,658/- made for expenses relating to earlier years. What is left out of the above amounts is ₹ 4,96,780/- being obsolete stock written off and ₹ 37,06,054/- being advance to Balbir Distilleries. In so far as obsolete stock is concerned, addition was sustained for a reason that assessee could furnish details for ₹ 20.73 lakhs against the claim of ₹ 25,69,780/-. Tribunal has has clearly mentioned this. Tribunal has also mentioned that what assessee has produced was a list of small items. Non-production of supporting records to show value of obsolete stock could, in our opinion, be a reason for disallowance. However, we cannot say that such a claim is far fetched or an illegitimate one. Just because the claim was disallowed, in our opinion, penalty ought not have been levied on the said amount. Disallowance towards advance to Balbir Distilleries which was written off by the assessee, this Tribunal sustained the order of CIT (A) wherein he deleted the disallowance to the extent of ₹ 33 lakhs. AO had disallowed the claim for a reason that it was a capital loss being an advance, given for acquiring capital asset. There is no finding by the lower authorities that the advances were not related to the business of the assessee. Whether write off of advance can be considered as a capital loss or revenue loss is, in our opinion, is a debatable issue not amenable to a levy of penalty. Write off of bad debts disallowed by the AO on which penalty has been levied, CIT (A) in assessee s appeal had deleted the penalty relatable to the sum of ₹ 15,79,679/-. When the matter reached this Tribunal it deleted the disallowance made by the AO in full. Hence penalty levied on such amount cannot be sustained. Levy of penalty is deleted on all. - Decided in favour of assessee

Summary

Issues:
Levy of penalty u/s.271(1)(c) of the Income-tax Act, 1961 for prior period expenditure, merger expense claim, advance write-off, and bad debt write-off.

Analysis:

1. Prior Period Expenditure:
The appeal challenged the penalty imposed on prior period expenditure disallowed during assessment. The CIT (A) partially allowed relief, and the Tribunal upheld the addition for obsolete stock written off. However, non-production of supporting records does not imply an unlawful claim, and the penalty was unjustified.

2. Merger Expense Claim:
The penalty on merger expenses was contested, with the AO alleging inaccurate particulars. The Tribunal found that the claim was eligible for write-off under section 35DD, indicating no malafide intention. The penalty was deemed unwarranted.

3. Advance Write-off:
Regarding the advance write-off, the AO disallowed a portion as a capital loss, but the Tribunal upheld the CIT (A)'s decision to delete a significant part of the disallowance. The nature of the advance and its relation to business activities were debatable, making the penalty unjustifiable.

4. Bad Debt Write-off:
The penalty on bad debt write-off was challenged, and the Tribunal found that a substantial portion of the disallowance was unjustified. The penalty was deemed unsustainable as the Revenue failed to establish concealment or inaccurate particulars.

5. Overall Decision:
The Tribunal concluded that the penalty on all items was unwarranted as there was no evidence of concealment or furnishing inaccurate particulars. The appeal was allowed, and the penalty was deleted on all grounds. The question of whether the penalty was for concealment or inaccurate particulars became irrelevant due to the deletion based on merit.

In summary, the Tribunal ruled in favor of the assessee, holding that the penalty levied was unjustified as there was no indication of concealment or inaccurate particulars. The appeal was allowed, and the penalty was deleted on all contested items, emphasizing the lack of evidence to support the penalty imposition.