2016 (5) TMI 689 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of stock written off - Held that - The impugned disallowance of stock written off finds its origination from the books of account, as the assessee which is maintaining regular books of account with complete quantitative details, figured out certain slow moving items depicted at pages 31 to 34 of the paper book having a list of 79 items which are mainly related to computer hard-wares and the same were categorized under list of items not moving for a long time due to change in technology and other wear and tear and the total of these items at ₹ 13,59,000/- were specifically debited to profit and loss account. Certainly this action of assessee cannot be categorized as furnishing of inaccurate particulars of income or concealment of income because the same have been carried out in the normal course of business and when this entry was made by assessee it was in the firm belief that all these items which are slow moving and having no present market value, needs to be cleared off from the inventory, so that inventory is appearing on the last date of the financial year is backed up by correct value. It is true that assessee has been unable to give any explanation that why earmarked slow moving items do not have any scrap value but this cannot be a basis for which penalty u/s 271(1)(c) of the Act can be imposed. We are, therefore, of the view that assessee should not be visited with penalty u/s 271(1)(c) of the Act for the addition confirmed upto the stage of Tribunal for disallowance of stock written off - Decided in favour of assessee Disallowance of selling and distribution expenses towards Mizoram-e-governance project - Held that - , in the given appeal relating to imposition of penalty u/s 271(1)(c) of the Act, we observe that no such effort has been made on the part of Revenue to get the information from Mr. Larsingh M (proprietor of NEITCS) and also no other efforts were made to take information about the bank account in which the impugned payment was credited. Assessee has already lost in appeal on quantum addition but as far as penalty u/s 271(1)(c) of the Act, we are of the view that details of types of services provided to assessee were clearly mentioned in the bills issued by Larsingh M, payments were made by account payee demand draft and above all there was a corresponding income by way of collection on gross revenue of approximate ₹ 2 crores from Mizoram-egovernance project and looking to the facts that no efforts were made by the Revenue to extract necessary information, certainly in such circumstances, assessee should not be visited with penalty u/s 271(1)(c) of the Act. - Decided in favour of assessee

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Satisfaction recorded by the Assessing Officer for initiating and levying penalty.
3. Disclosure and adequacy of information relating to obsolete stock written off and selling and distribution expenses.
4. Bona fide nature of explanations offered by the appellant.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appellant contested the confirmation of a penalty amounting to ?18,73,720/- levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The appellant argued that there was neither concealment of income nor furnishing of inaccurate particulars of income. The Tribunal noted that the penalty was imposed due to the disallowance of stock written off (?13,59,000/-) and selling & distribution expenses (?37,61,506/-). The Tribunal found that the appellant had disclosed these items in the financial statements, and the disallowance was based on a different view taken by the authorities. Thus, the Tribunal held that the appellant should not be penalized under Section 271(1)(c) for these disallowances.

2. Satisfaction Recorded by the Assessing Officer for Initiating and Levying Penalty:
The appellant claimed that the AO did not record the requisite satisfaction for initiating and levying the penalty. The Tribunal observed that the AO had provided sufficient opportunity to the appellant for a hearing, which was not attended by the appellant. The AO detailed the issues in the penalty order, expressing satisfaction that the appellant had furnished inaccurate particulars of income and concealed income. The Tribunal upheld the AO's satisfaction and the validity of the penalty proceedings, noting that the AO had applied his mind and selectively initiated penalty proceedings on specific additions.

3. Disclosure and Adequacy of Information Relating to Obsolete Stock Written Off and Selling and Distribution Expenses:
The Tribunal examined the disallowance of stock written off (?13,59,000/-) and selling & distribution expenses (?37,61,506/-). The appellant had written off slow-moving items, which were not supported by a technical report or evidence. The AO and CIT(A) disallowed the claim due to a lack of supporting evidence. However, the Tribunal found that the appellant's action of writing off the stock was in the normal course of business and could not be categorized as furnishing inaccurate particulars or concealment of income. Therefore, the Tribunal held that the penalty under Section 271(1)(c) should not be imposed for the disallowance of stock written off.

Regarding the selling & distribution expenses, the appellant claimed that these were related to the Mizoram-e-governance project. The AO disallowed the expenses due to a lack of evidence of services rendered by the recipient. The Tribunal noted that the appellant had provided bills and made payments by account payee demand drafts. The Tribunal found that the Revenue did not make efforts to verify the genuineness of the bills or the recipient's bank account. Therefore, the Tribunal held that the penalty under Section 271(1)(c) should not be imposed for the disallowance of selling & distribution expenses.

4. Bona Fide Nature of Explanations Offered by the Appellant:
The appellant argued that the explanations offered for the disallowed items were bona fide and that the disallowance was based on a different view taken by the authorities. The Tribunal observed that the appellant had disclosed all relevant information in the financial statements and during assessment proceedings. The Tribunal found that the explanations offered by the appellant were bona fide and that the disallowance was not due to any false information furnished by the appellant. Therefore, the Tribunal held that the penalty under Section 271(1)(c) should not be imposed.

Conclusion:
The Tribunal allowed the appeal of the appellant, setting aside the order of the CIT(A) and deleting the penalty of ?18,73,720/- imposed under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal found that the appellant had not concealed income or furnished inaccurate particulars of income and that the explanations offered were bona fide. The penalty proceedings were deemed invalid due to the lack of proper verification by the Revenue authorities.

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