2016 (6) TMI 939 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - provision for loss of stock claimed - Held that - Explanation filed by the assessee, about the disputed amount plays a vital role in deciding the justification of levying concealment penalty. In the matter before us, the assessee had disclosed all the necessary details. In our opinion, explanation filed by the assessee in that regard was bona fide. Secondly, it is an accepted principle of tax-jurisprudence that additions made during assessment proceedings cannot result in automatic levy of penalty. A patent wrong and inadmissible claim, made against the clear cut provisions of the Act, falls under the category of filing of inaccurate particulars of income resulting in concealment. In the matter before us, no wrong claim was made. The assessee had made entries in the books of accounts as per the mandate of AS-2. So, it cannot be held that it had concealed its particulars of income. It is not the case of the AO that the assessee had not disclosed the fact of obsoleteness of the stock or notice from the state government authorities. Therefore, there was no justification of invoking the provisions of section 271(1)(c)of the Act. Making additions or disallowing certain expenses during the assessment proceedings is totally different from invoking penal provisions. There is no provision in the Act of automatic levy of penalty for the additions/disallowances made. So, we are of the opinion that there was no furnishing of inaccurate particulars and that the explanation given by the assessee was bonafide. - Decided in favour of the assessee.

Summary

Issues Involved:
Confirmation of penalty under section 271(1)(c) of the Act based on the claim of provision for loss of stock made by the assessee.

Detailed Analysis:

1. Assessment Proceedings:
The assessee, a chemical manufacturing company, declared a total loss in its income tax return. The Assessing Officer (AO) found that the assessee claimed a provision for loss of stock without proper evidence. The AO held that the claim was not genuine, leading to penalty proceedings.

2. Penalty Proceedings:
The assessee explained that the provision for loss was due to obsolete stock becoming hazardous waste, necessitating disposal. The AO imposed a penalty under section 271(1)(c) for alleged concealment of income and furnishing inaccurate particulars.

3. First Appellate Authority (FAA) Decision:
The FAA upheld the penalty, stating that the claim lacked supporting evidence and was a clear case of furnishing inaccurate particulars. The FAA referred to past decisions and confirmed the AO's order.

4. Tribunal's Decision:
The Tribunal noted that the assessee made the provision as per Accounting Standards (AS)-2 and had disclosed all necessary details. It emphasized that a bona fide difference of opinion should not lead to penalty under section 271(1)(c). The Tribunal found no concealment or furnishing of inaccurate particulars by the assessee.

5. Legal Principles and Precedents:
The Tribunal cited the case of Reliance Petroproducts Ltd., emphasizing that incorrect claims do not necessarily constitute inaccurate particulars. It highlighted that the return filed by the assessee is crucial, and penalty cannot be invoked without inaccuracies in the particulars provided. The Tribunal ruled in favor of the assessee, allowing the appeal and emphasizing the importance of bona fide explanations in tax matters.

In conclusion, the Tribunal found that the assessee's claim for provision for loss of stock was made in good faith and in compliance with accounting standards. The Tribunal's decision was based on the absence of concealment or furnishing of inaccurate particulars, aligning with legal principles and relevant precedents. The appeal was allowed, and the penalty under section 271(1)(c) was set aside.