2017 (5) TMI 1046 - AT - Income Tax

Penalty levied under section 271(1)(c) - bad debts written off - Held that - We find that issue in dispute in the quantum appeal has already been restored to the file of the Assessing Officer, the penalty levied by the Assessing Officer and sustained by the Ld. CIT-A cannot survive, and while deciding the issue the Assessing Officer, may take action for initiation of penalty proceeding in accordance with law . Accordingly all the grounds raised by the assessee in respect of the penalty levied on the issue of bad debts written off are allowed accordingly. Allowability of the claim under section 36(1)(vii) - Held that - Assessing Officer has not examined the allowability of the claim under section 36(1)(vii) of the Act and rejected the claim merely with the finding that claim of the assessee for reducing the accrued income on a sticky loans in the computation of income for earlier years was sub-judice before the Ld. CIT(A) and the ITAT. In the circumstances, in our opinion the finding of the Ld. CIT(A) that claim made by the assessee was incorrect, is not justified and therefore the finding of the Ld. CIT(A) that the assessee has filed inaccurate particulars to the extent of the claim, cannot be accepted. In our opinion, once the principle debt has already been written off in the books of accounts, the interest due on said loans also was eligible for written off and therefore we do not find any incorrectness in making this alternative claim by the assessee. Accordingly, the penalty sustained by the Ld. CIT(A) is directed to be deleted and the grounds of the appeal are accordingly allowed.

Summary

Issues:
1. Penalty levied under section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2003-04 and 2004-05.
2. Disallowance of bad debts written off and interest on sticky loans.

Analysis:

Issue 1 - Penalty for assessment year 2003-04:
The appellant challenged the penalty of ?52,10,054 levied under section 271(1)(c) for disallowance of bad debts written off. The Tribunal noted that the quantum appeal had already restored the issue to the Assessing Officer for verification. Since the issue was pending, the penalty could not be sustained. The Tribunal allowed all grounds raised by the assessee regarding the penalty on bad debts written off.

Issue 2 - Penalty for assessment year 2004-05:
In this case, the appellant contested the penalty of ?89,93,427 imposed under section 271(1)(c) for disallowance of interest on sticky loans. The Ld. CIT(A) upheld the penalty based on incorrectness of the claim under Section 36(1)(vii) of the Act. However, the Tribunal found that the Assessing Officer had not examined the allowability of the claim under section 36(1)(vii) and had rejected it on the basis of pending appeals. The Tribunal disagreed with the Ld. CIT(A) and concluded that the claim made by the assessee was justified. Therefore, the penalty was directed to be deleted, and the appeal of the assessee was allowed.

In conclusion, both appeals of the assessee were allowed, and the penalties for both assessment years were set aside based on the specific circumstances and legal provisions analyzed in each case.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by the parties, and the legal reasoning behind the Tribunal's decision in each case.