2016 (5) TMI 56 - AT - Income Tax

Levy of penalty under section 271 (1)(c) - claim of losses - Held that - On perusal of the assessment order dated February 28, 2006, apparently, the assessee claimed losses with regard to the incomplete work which has not been allowed by the Assessing Officer and the said losses having been added to the income of the assessee. In our view, it is not a case of furnishing inaccurate particulars of income. Making incorrect claim, if any, does not amount to concealment of particulars because no information given by the assessee in its return of income is found to be incorrect. In this regard, we draw the support from the decision of the hon ble Supreme Court in the case of CIT v. Reliance Petroproducts P. Ltd. 2010 (3) TMI 80 - SUPREME COURT . In effect, we are of the view that the Assessing Officer was not justified in levying penalty on the amount disallowed since the said claim is supported by Accounting Standard-7 issued by the Institute of Chartered Accountants of India. Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to delete the penalty. - Decided in favour of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2003-04 based on disallowed expenses claimed for provisions made for contracts.

Analysis:
1. The appeal was filed against the penalty imposed by the Assessing Officer and upheld by the Commissioner of Income-tax (Appeals) under section 271(1)(c) of the Act for the assessment year 2003-04. The controversy revolved around the disallowed expenses amounting to &8377; 8,61,19,588 claimed for provisions made for contracts by the assessee.

2. The Assessing Officer disallowed the provisions after examining each contract, stating they were unascertained liabilities not capable of reasonable estimation. Subsequently, a penalty of &8377; 3,16,48,949 was imposed, which was confirmed by the Commissioner of Income-tax (Appeals). The assessee argued that the disallowance was unjustified as it was based on Accounting Standard 7 revised-2002, allowing future losses to be claimed, and that no inaccurate particulars were furnished to avoid tax liability.

3. The authorized representative contended that the penalty order lacked reasoning and was against the law, citing case laws to support the claim that the disallowance was not concealment of income particulars. The Departmental representative argued that the disallowed claim was baseless as no work was done, and the penalty was rightly imposed and confirmed by the Commissioner of Income-tax (Appeals).

4. The Tribunal analyzed whether the assessee concealed income particulars or furnished inaccurate details to evade tax liability. Referring to Accounting Standard-7, it was noted that expected losses could be recognized, even if work had not commenced. The Tribunal found that the disallowed claim was not a case of inaccurate particulars but a legitimate claim supported by the accounting standard, leading to the order to delete the penalty.

5. Considering the Supreme Court decision in CIT v. Reliance Petroproducts P. Ltd. [2010] 322 ITR 158 (SC) and the pending appeal before the Bombay High Court, the Tribunal concluded that the penalty was unjustified. Therefore, the order of the Commissioner of Income-tax (Appeals) was set aside, and the Assessing Officer was directed to delete the penalty.

6. Consequently, the appeal of the assessee was allowed, and the decision was pronounced on 18th November 2015.