2017 (3) TMI 1385 - AT - Income Tax

Penalty u/s 271(1)(c) - provision debited to Profit & Loss account in respect of the debt due from Madhavpura Mercantile Co-op Bank Limited - Held that - The assessee s claim was not allowable because assessee had not reduced the figure of advances in which the impugned amount was included, rather kept the said balance intact and made corresponding provision which was claimed as deduction. This treatment in account could not be said to be write off of the impugned amount and, therefore, the assessee s claim was not allowable. However, it cannot be disputed that assessee had furnished all the necessary details in regard to FDR of ₹ 4,20,47,179/- placed with Madhavpura Mercantile Co-op Bank Limited which included the impugned amount. Assessee s explanation that the amount was kept intact in the books is quite reasonable and bonafied considering the overall facts. At best, this can be said to be a claim not sustainable in law. However, that automatically does not lead to levy of penalty. - Decided in favour of assessee Disallowance of Reserve for schedule assets - Held that - The assessee s claim was based on RBI s directive, however, admittedly RBI s directive do not govern the provisions of Income Tax Act. The Ld.CIT(A) has also pointed out that in the case of Southern Technologies Ltd. Vs. JCIT 2010 (1) TMI 5 - SUPREME COURT OF INDIA , the Hon ble Supreme Court has also upheld this view. He further pointed out that the return of income was filed by assessee on 39.9.2008 and the issue got settled on 11.01.2010. Thus, prior to this date the issue was highly debatable. We do not find any reason to interfere with the order of the Ld.CIT(A) because assessee had disclosed all necessary facts in regard to its claim and at best, it could be said to be a claim not sustainable in law. - Decided in favour of assessee

Summary

Issues:
1. Appeal against penalty levied under section 271(1)(c) for assessment years 2008-09 and 2009-10.
2. Disallowance of bad debts provision for matured investments return.
3. Disallowance of Reserve for schedule assets.
4. Initiating penalty proceedings for additions made under section 263.
5. Deletion of penalty by CIT(A).
6. Whether penalty under section 271(1)(c) is leviable.
7. Applicability of RBI's directive on reserve for standard assets.
8. Disclosure of necessary facts by the assessee.
9. Adherence to legal principles for penalty imposition.

Analysis:
1. The Department appealed against the penalty orders for assessment years 2008-09 and 2009-10. The dispute arose from disallowances made by the Assessing Officer, including bad debts provision and reserve for schedule assets.

2. The Assessing Officer disallowed the bad debts provision for matured investments return and the Reserve for schedule assets. The appellant sought withdrawal of the appeal based on various grounds, including the treatment of bad debts and standard assets provisioning.

3. Penalty proceedings were initiated under section 263 for the disallowed amounts. The CIT(A) deleted the penalty, leading to the Department's appeal. The issue revolved around whether the penalty under section 271(1)(c) was justified.

4. The Department contended that the assessee inaccurately claimed deductions without writing off amounts in the books, leading to potential future claims. The assessee argued that the treatment was reasonable and in line with relevant accounting practices.

5. The CIT(A) considered the submissions and ruled in favor of the assessee, citing disclosures made and legal precedents. The Tribunal upheld the CIT(A)'s decision based on the principles laid down by the Hon'ble Supreme Court.

6. Regarding the reserve for standard assets based on RBI's directive, the Tribunal noted that the claim was not sustainable in law. However, since the assessee disclosed all necessary facts, the penalty was not warranted.

7. The Tribunal emphasized the importance of disclosing all relevant details and following legal principles when considering penalty imposition. The decisions of the Hon'ble Supreme Court were pivotal in confirming the CIT(A)'s order.

8. The Tribunal dismissed the Revenue's appeals for both assessment years, affirming the CIT(A)'s decision. The judgment highlighted the necessity of adhering to legal standards and providing accurate disclosures to avoid penalties.