2016 (5) TMI 403 - AT - Income Tax

Penalty u/s 271(1)(c) - bogus write off of bad debts and interest claimed as deduction which is attributable towards the interest free loan advanced to sister concern - Held that - It is apparent from the orders of the Revenue that the assessee has not established the genuiness of its claim of bad debts. If the assessee had genuine debtors arising from the sale of steel, it would have been easy for it to establish so. The assessee has also not made any attempt to prove that its earlier admissions are erroneous. From these facts it is apparent that the assessee s claim of bad debts has no merits. More so when it is apparent that the assessee during the earlier assessment years has credited in its books of accounts with income stating it to be earned from Aqua culture while as those income related to earnings from unaccounted sale of steel and correspondingly debited the same in fictitious debtors accounts because the assessee in the earlier proceedings has admitted that no expenditure was debited in the books of accounts for earning such income. Hence it is abundantly clear that these debtors are bogus. Further, the assessee has transferred its interest bearing funds to its sister concerns as interest free advances and thereby erroneously absorbed the interest pertaining to that funds in its books of account. This amount of interest can be computed arithmetically with accuracy and cannot be termed as estimation and has been rightly disallowed. Therefore, the reliance placed by the assessee and the learned Commissioner of Income Tax (Appeals) in the decisions of higher judicial are not applicable to the facts of this case. Further the assessee has not succeeded in its quantum appeal on these issues before the appellate authorities as conceded by the learned Assessees Representative. From the above facts and circumstances of the case, it is clearly established that the assessee has concealed its income by furnishing incorrect particulars. Hence, the learned Assessing Officer is justified in levying penalty on the assessee - Decided against assessee.

Summary

Issues:
Penalty under section 271(1)(c) for bogus write off of bad debts and interest claimed as deduction.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the penalty levied under section 271(1)(c) of the Act. The crux of the issue was the deletion of penalty for the write off of bad debts amounting to ?1.8 crores and interest claimed as deduction of ?44,79,440 related to interest-free loan advanced to a sister concern. The Assessing Officer disallowed these claims during assessment, leading to the penalty imposition.

The Assessing Officer observed that the assessee furnished incorrect information regarding the bad debts and interest claimed as deduction. The company had admitted that the transactions related to aquaculture business were bogus, leading to the disallowance of the bad debts. Additionally, the interest amount attributable to interest-free advance was disallowed and added to the income of the assessee. The penalty was imposed based on the concealment of income by furnishing inaccurate particulars.

The Commissioner of Income Tax (Appeals) deleted the penalty based on the decision of the Chennai Bench of the Tribunal and other case laws, stating that the assessee had disclosed the claim particulars fully and the disallowance of interest was on an estimation basis. The Tribunal, however, held that the genuineness of the bad debts claim was not established, and the shifting of interest from subsidiary to the assessee was erroneous, justifying the penalty imposition. The order of the Commissioner of Income Tax (Appeals) was set aside, and the Assessing Officer's decision was restored, allowing the Revenue's appeal.

In conclusion, the Tribunal upheld the penalty under section 271(1)(c) for the bogus write off of bad debts and the interest claimed as deduction, as the assessee concealed income by furnishing incorrect particulars. The decision highlighted the lack of genuineness in the claims and the erroneous shifting of interest, justifying the penalty imposition.