2016 (11) TMI 734 - AT - Income Tax

Penalty u/s 271(1)(c) on disallowance under section 14A - Held that - Following the decision of the Coordinate Bench of this Tribunal in the assessee s own case for A.Y. 2000- 01 we also are of the view that the issue of the disallowance under section 14A of the Act is a highly debatable one and it cannot be said that the assessee has concealed any particulars of income. In the light of the above facts and circumstances of the case we hold that the levy of penalty under section 271(1)(c) of the Act on this issue was not justified and cancel the same - Decided in favour of assessee Penalty on disallowance of non-compete fee paid to ex-Directors - Held that - Merely because the assessee s claim for the said expenditure as revenue was turned down in quantum appeal proceedings; that by itself would not be ground enough to reach the conclusion that the particulars furnished/disclosed by the assessee were false dishonest or inaccurate or that income was concealed. In this factual and legal matrix of the case we are of the view that penalty under section 271(1)(c) of the Act was not exigible in the case on hand on the issue of the assessee s claim regarding non-compete fee paid to ex-Directors and cancel the penalty levied thereon. - Decided in favour of assessee Penalty on income from bad debts recovered - Held that - The reason put forward by the assessee for its action; that since bad debts claimed in this regard had been disallowed by the AO therefore the assessee had not offered the recovery thereof for tax in our considered view is not acceptable as the aforesaid action of the assessee in not offering the recovery of bad debts to tax is not in conformity with the mandate of the provisions of section 36 of the Act. It is not the case of the assessee that a legal claim made was disallowed which is a debatable issue. In respect of recovery on bad debts written off by the assessee the position in law is clear and unambiguous; the assessee has to offer the same to tax in the year in which the recovery is made. Since the assessee has failed to do in violation of the mandated provisions of law we are of the view that action of the authorities below in levying penalty under section 271(1)(c) of the Act in respect of the assessee s not offering the recovery of bad debts written off in the facts and circumstances of the case is in order and we uphold and confirm the same. Decided against assessee Penalty on disallowance of employees contribution to PF/ESIC for delayed payment - Held that - The authorities below have not disputed the averments of the assessee that the PF/ESIC was paid to the government before the due date for filing the return of income under section 139(1) of the Act. The disallowance and consequent levy of penalty by authorities below was for the assessee s making the said payment of PF/ESIC dues beyond the due dates as per the PF Act and ESIC Act respectively. In the case on hand the employees contribution to PF/ESCI having been admittedly paid before the due date for filing its return under section 139(1) of the Act the disallowance made by the authorities below was not called for as the issue in the case on hand would be covered by the proviso to section 43B of the Act. In this view of the matter we cancel the penalty levied under section 271(1)(c) - Decided in favour of assessee Penalty on disallowance of donation - Held that - Admittedly the assessee has not disallowed this ineligible expenditure while computing its income for the year under consideration. In our view this is a clear case of furnishing of inaccurate particulars of income and therefore uphold the penalty levied under section 271(1)(c) of the Act in this regard. The assessee s appeal on this issue is rejected. - Decided against assessee

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for various disallowances.

Issue-wise Detailed Analysis:

1. Condonation of delay in filing the appeal:
The appeal was filed 69 days late due to inadvertent oversight by the tax consultants of the petitioner. The petitioner argued that the delay was not intentional but a bona fide mistake and requested a liberal approach for condonation. The Tribunal, referencing the principles laid down by the Hon'ble Apex Court in Collector, Land Acquisition (167 ITR 471) (SC), agreed that substantial justice should prevail over technical considerations. The Tribunal concluded that condoning the delay would not harm the Revenue and admitted the appeal for consideration and adjudication.

2. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961:

a. Disallowance under section 14A:
The AO disallowed Rs. 2,44,22,750/- under section 14A, which the CIT(A) reduced to Rs. 7,61,476/-. The Tribunal noted that the assessee had sufficient own funds to cover the investments and had fully disclosed all facts in the Balance Sheet. Referring to the assessee’s own case for A.Y. 2000-01, where similar penalty was deleted, the Tribunal held that the issue was highly debatable and there was no concealment or furnishing of inaccurate particulars. Thus, the penalty was canceled.

b. Disallowance of non-compete fee paid to ex-Directors:
The AO disallowed Rs. 6,41,600/- as non-compete fees, considering it capital in nature. The Tribunal found that the assessee had disclosed all details regarding the payment in the return and accompanying documents. Citing the Hon'ble Apex Court's decision in CIT vs. Reliance Petroproducts Ltd. (2010) 322 ITR 158 (SC), the Tribunal held that merely because the claim was not accepted, it did not warrant penalty. The penalty was therefore canceled.

c. Income from bad debts recovered:
The assessee did not offer Rs. 12,94,498/- recovered from bad debts to tax, reasoning that the AO had disallowed the write-off in A.Y. 2000-01. The Tribunal held that the assessee's action was not in conformity with section 36 of the Act, which mandates offering recovered bad debts to tax in the year of recovery. Therefore, the penalty was upheld and confirmed.

d. Disallowance of employees' contribution to PF/ESIC for delayed payment:
The AO disallowed Rs. 6,852/- for delayed payment of PF/ESIC. The Tribunal noted that the payments were made before the due date for filing the return under section 139(1) and were disclosed in the tax audit report. Referring to the Hon'ble Bombay High Court decisions in CIT vs. HOCL (366 ITR 1) (Bom) and CIT vs. Ghatge Patil Transports Ltd. (368 ITR 749) (Bom), the Tribunal held that the disallowance was not warranted and canceled the penalty.

e. Disallowance of donation:
The AO disallowed Rs. 1,859/- for donation not disallowed by the assessee while computing income. The Tribunal found this to be a clear case of furnishing inaccurate particulars and upheld the penalty.

Conclusion:
The Tribunal partly allowed the appeal, canceling penalties on disallowance under section 14A, non-compete fee, and delayed PF/ESIC payments, while upholding penalties on income from bad debts recovered and disallowance of donation.

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