2016 (8) TMI 912 - AT - Income Tax

Penalty u/s 271(1)(c) - Addition on account of bad and doubtful debts claimed by the assessee u/s 36(1)(viia) - Held that - In the instant case, the penalty has been levied for claiming deduction u/s 36(1)(viia) of the Act - Held that - CIT(A) has given a categorical finding that it has not been shown how by making the claim in respect of Provision for bad and doubtful debts, the assessee has concealed or furnished inaccurate particulars of income. The appellant has explained that the claim was made for liability determined as per the RBI guidelines and auditors have concurred with the said claim of liability of the bank. Further, as there was substantial loss, there was no tax benefit to the assessee. The said explanation has not been shown to be false or malafide and all the relevant facts for computation of income have been disclosed by the appellant in the return of income. The same analogy and finding will apply in respect of contribution to the gratuity fund. We hereby confirm the findings of the ld CIT(A) deleting the penalty levied under section 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Deletion of penalty u/s 271(1)(c) on addition of bad and doubtful debts claimed by the assessee u/s 36(1)(viia).
2. Deletion of penalty u/s 271(1)(c) on addition made by the AO on account of disallowance of contribution to the gratuity fund.

Analysis:

Issue 1: Deletion of penalty u/s 271(1)(c) on bad and doubtful debts claimed by the assessee:

The appeal was filed by the Revenue against the order of the ld. CIT(A) regarding the deletion of penalty u/s 271(1)(c) on the addition of bad and doubtful debts claimed by the assessee u/s 36(1)(viia). The AO had made additions to the assessment, including provision for bad and doubtful debts. The Coordinate Bench confirmed these disallowances, leading to the penalty imposition by the AO under section 271(1)(c). However, the ld. CIT(A) deleted the penalty citing that the deduction claim was debatable, as per the decision of Hon’ble ITAT. The CIT(A) emphasized that the mere disallowance of a claim does not automatically warrant a penalty under section 271(1)(c). The appellant had provided explanations for the claim based on RBI guidelines, with no intention to conceal income. The penalty was deemed unsustainable and was deleted.

Issue 2: Deletion of penalty u/s 271(1)(c) on disallowance of contribution to the gratuity fund:

The second issue involved the deletion of penalty u/s 271(1)(c) on the disallowance of contribution to the gratuity fund. The assessee had made a genuine claim based on its liability, although the fund was not approved. The ld. AR argued that the disallowance was due to technical reasons and not an attempt to conceal income. The assessee had disclosed all relevant facts for income computation, and the claim was not camouflaged or false. The Tribunal noted that the penalty was imposed solely based on the ITAT decision in the quantum proceedings. However, the CIT(A) found no evidence of concealment or inaccurate particulars of income by the assessee. The explanations provided were considered genuine, aligning with relevant legal precedents. Consequently, the penalty was deleted for this issue as well.

In conclusion, the Tribunal confirmed the findings of the ld. CIT(A) and dismissed the appeal filed by the Revenue, emphasizing the importance of distinguishing between quantum additions and penalty proceedings, especially in cases where claims are debatable and supported by genuine explanations and disclosures.