2016 (9) TMI 707 - AT - Income Tax

Penalty levied u/s 271(1)(c) - addition made on account of stock written off - Held that - As during the assessment proceedings the assessee filed letter of three different parties to whom impugned stock was shown and the same was rejected by them. Thereafter, the directors of the company took a conscious decision to write off stock considering the condition of the market and to save cost of storage etc. From the assessment order para (b) we note that the A.O has alleged that the ball pen could have been used by replacing the dried refills and HDPE bags could have been recycled but on this allegation we agree with the contention of the Ld. AR that the plastic body of ball pen has cracked and for recycling of bags the assessee is not a manufacturer but it is a simple trader who can t recycle the absolute stock. On the issue of disallowance regarding other deprecation and expenses we note that in the impugned order the genuineness and incurrence of expenditure has not been doubted and this disallowances have been made on the allegation of non-existence at any business activity and disallowances on these counts have been made merely because not business activity was carried out during the A.Y by the assessee. However, the addition based on the said allegations have attained finality due to dismissal of appeal on account of non prosecution, but we may point out that the assessee being a private limited company, a legal entity, cannot be deprived from claiming the expenses incurred in running and maintaining the existence of a legal entity. On the basis of above, we are inclined to hold that there is no sustainable allegation by A.O in the penalty order that either the assessee has concealed particulars of its income or has furnished in accurate particulars of its income. As there is no finding the assessee had either concealed the particulars of its income or furnished particulars of income or furnished particulars of income penalty u/s 271(1)(c) of the Act cannot be held as sustainable and we dismiss the same - Decided in favour of assessee

Summary

Issues:
Challenge to penalty levied under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:
1. The assessee challenged the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, based on the belated filing of the return and the claim for carry forward loss. The Counsel argued that the penalty was not validly sustainable as the return was filed at NIL income, which was later rectified to a reduced amount after additions by the Assessing Officer (A.O.). The Counsel contended that the penalty order was erroneous and lacked application of mind by the A.O.

2. The Counsel highlighted that the business losses claimed were due to genuine reasons such as stock write-offs, depreciation, and expenses. The Counsel argued that the penalty should not be levied as there was no intention to conceal income or provide inaccurate particulars. The Counsel referenced the decision of the Hon'ble Supreme Court in CIT Vs. Reliance Petro Products Pvt. Ltd (2010) to support the argument that penalty cannot be imposed without evidence of deliberate falsification.

3. The Revenue argued that the penalty should be upheld based on subsequent decisions of the Hon'ble Supreme Court, which clarified the retrospective effect of Explanation 4 to Section 271(1)(c) of the Act. However, the assessee's Counsel contended that the Tribunal had not considered all aspects of the case, including the merits of the additions made during the assessment.

4. Upon careful consideration, the Tribunal noted that the earlier order allowing the appeal was based on a specific legal proposition from the Supreme Court, and other merits were not considered. Subsequently, the Tribunal reheard the case to evaluate all aspects, including the merits of the additions and the applicability of Explanation 4. The Tribunal emphasized that penalty cannot be upheld solely on legal grounds and must consider all contentions and explanations provided by the assessee.

5. The Tribunal analyzed the merits of the penalty, noting that the additions were made during the original assessment without detailed adjudication. Regarding stock write-offs and disallowed expenses, the Tribunal found that there was no sustainable allegation of concealing income or furnishing inaccurate particulars. The Tribunal cited the Reliance Petro Products case to emphasize that mere disallowance of a claim does not warrant penalty without evidence of deliberate falsification.

6. Ultimately, the Tribunal allowed the assessee's appeal, setting aside the penalty imposed by the A.O. and the CIT(A). The Tribunal directed the deletion of the penalty, concluding that there was no sustainable basis for levying the penalty under section 271(1)(c) of the Income Tax Act, 1961.

This detailed analysis of the judgment highlights the legal arguments, precedents referenced, and the Tribunal's reasoning leading to the decision to set aside the penalty imposed on the assessee.