2016 (10) TMI 886 - AT - Income Tax

Penalty u/s.271(1)(c)- addition on account of provision for detention charges and demurrage charges - Held that - The assessee has genuinely disclosed all the facts qua the claim of the expenses which were based on a scientific method and also in respect of goods actually imported from Sri Lanka, and therefore, we do not doubt and dispute the genuineness of the claim made by the assessee. We also find that the provisions were written back when the assessee lost the quantum appeal before CIT(A) and due taxes were paid in A.Y.2011-12. In our opinion, the penalty confirmed by the CIT(A) is wrong and cannot be sustained on the ground that the assessee made genuine claim for the expenses payable to Jawahar Lal Nehru Port Trust in respect of the goods actually imported and lying at the port which in no way can be described as filing of inaccurate particulars of income or concealment of income - Decided in favour of assessee

Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act.
2. Disallowance of provision for detention and demurrage charges.
3. Whether the claim of expenses was bona fide and based on a scientific method.
4. Whether the penalty for furnishing inaccurate particulars of income is justified.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The primary issue raised by the assessee was against the confirmation of a penalty amounting to ?5,19,811/- imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act. The penalty was levied on the grounds of furnishing inaccurate particulars of income and concealing income related to the provision for detention and demurrage charges. The AO concluded that the liability for these charges had not crystallized during the year and was merely a provision, thus not allowable under the Act. The CIT(A) upheld the penalty, emphasizing that the provision was hypothetical and not supported by credible documentary evidence.

2. Disallowance of Provision for Detention and Demurrage Charges:
The assessee, a partnership firm engaged in manufacturing and trading marble products, had followed the mercantile system of accounting. They incurred detention and demurrage charges amounting to ?18,52,624/- and made a provision of ?16,82,238/- for these charges payable to Jawaharlal Nehru Port Trust (JNPT). The AO disallowed this provision, arguing that it was a contingent liability and not crystallized. The CIT(A) agreed, noting the absence of credible evidence and any payment made towards the liability by the date of the appellate order.

3. Bona Fide Claim and Scientific Method:
The assessee argued that the provision for detention and demurrage charges was calculated based on the rate charged by the port authority and was consistent with the mercantile system of accounting. The assessee had imported marble slabs from Sri Lanka, which were detained by customs authorities, leading to a series of litigations. The provision was reversed and offered for taxation in the subsequent year when the quantum appeal was lost. The assessee contended that the claim was bona fide and fully disclosed in the return of income, thus not warranting a penalty under section 271(1)(c).

4. Justification of Penalty for Furnishing Inaccurate Particulars:
The CIT(A) upheld the penalty, stating that the assessee did not disclose that the expenditure was neither paid nor crystallized and that the provision was hypothetical. The CIT(A) referenced the Supreme Court decision in CIT vs. Dharmendra Textile Processors, emphasizing strict liability for concealment or inaccurate particulars. However, the assessee relied on the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., arguing that merely disallowing a claim does not attract a penalty if the claim was bona fide and fully disclosed.

Conclusion:
The Tribunal found that the assessee had genuinely disclosed all facts regarding the claim for detention and demurrage charges, which were based on a scientific method and related to actual goods imported. The Tribunal concluded that the penalty under section 271(1)(c) was not justified as the assessee made a bona fide claim, and merely disallowing the claim does not constitute furnishing inaccurate particulars or concealment of income. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the penalty, thereby allowing the appeal of the assessee.

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