2017 (11) TMI 1415 - AT - Income Tax

Penalty imposed u/s 271(1)(c) - deduction on account of write off of adnavce given towrds purchase of property - Held that - As could be seen from the facts on record, out of the advance given of ₹ 30 lakh towards purchase of factory building, the assessee could recover the amount of ₹ 5 lakh only and the balance amount of ₹ 25 lakh could not be recovered in spite of best efforts. Therefore, in the return of income filed for the impugned assessment year, the assessee claimed deduction on account of write off of the amount of ₹ 25 lakh. From the Profit & Loss account and its schedule, it is apparent that the assessee had furnished full particulars of the claim of write off. Even, in the computation of income filed along with the return of income the assessee has appended a note, wherein he has disclosed full particulars about the facts relating to write off of ₹ 25 lakh. The assessment order itself reveals that relying upon the note appended to the computation of income as well as Profit & Loss account the Assessing Officer has made disallowance of the write off. The aforesaid facts clearly demonstrate that the assessee has furnished full particulars of write off of 25 lakh. Therefore, it cannot be alleged that the assessee has furnished inaccurate particulars of income for which the Assessing Officer had ultimately imposed penalty under section 271(1)(c). Rather, it is a bonafide claim of deduction made by the assessee considering the fact that it was unable to recover the amount of ₹ 25 lakh - Decided in favour of assessee.

Issues Involved:
1. Validity of penalty proceedings initiated under section 271(1)(c) of the Income-tax Act, 1961.
2. Merits of the penalty imposed on the addition of ?25 lakh.

Detailed Analysis:

1. Validity of Penalty Proceedings:

The primary issue revolves around the validity of the penalty proceedings initiated under section 271(1)(c) of the Income-tax Act, 1961. The assessee argued that the Assessing Officer (AO) did not record any satisfaction regarding the exact nature of the offence, i.e., whether it was for furnishing inaccurate particulars of income or concealing particulars of income. The AO's failure to indicate the specific charge in the show cause notice under section 274, which was in a standard printed format, was also highlighted. The assessee contended this violated the rules of natural justice, rendering the penalty order invalid.

The Tribunal observed that the AO merely mentioned "penalty proceedings under section 271(1)(c) are initiated" without specifying the nature of the offence. The show cause notice also did not specify the exact charge, leading to ambiguity. The Tribunal emphasized that the AO's satisfaction regarding the nature of the offence should be discernible from the assessment order, and the notice should clearly state the grounds for penalty, as per the principles laid down in various judicial precedents, including CIT v/s Manjunatha Cotton and Ginning Factory and Dilip N. Shroff v/s JCIT.

The Tribunal concluded that the penalty order was legally unsustainable due to the violation of natural justice principles, as the Department was unsure about the nature of the offence committed by the assessee. Consequently, the penalty imposed under section 271(1)(c) was deleted.

2. Merits of the Penalty Imposed on the Addition of ?25 Lakh:

On the merits, the assessee had claimed a deduction of ?25 lakh, which was an advance given towards the purchase of a factory building. The transaction did not materialize, and the amount could not be recovered despite efforts, leading to the write-off. The assessee disclosed all relevant details in its audited accounts and the return of income, including a note in the computation of income.

The Tribunal noted that the assessee had furnished full particulars of the write-off in the Profit & Loss account and the computation of income. The disallowance of ?25 lakh was sustained merely because it was not relatable to the impugned assessment year, and not due to any concealment or furnishing of inaccurate particulars. The Tribunal referred to the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., which held that making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars.

Given that the assessee had disclosed all material facts and made a bona fide claim, the Tribunal held that the penalty under section 271(1)(c) could not be sustained. Consequently, the penalty imposed was deleted.

Conclusion:

The Tribunal allowed the assessee's appeal, holding that the penalty proceedings were invalid due to the AO's failure to specify the exact nature of the offence and the violation of natural justice principles. Additionally, on merits, the assessee had a strong case as it had disclosed all relevant facts and made a bona fide claim, which did not amount to furnishing inaccurate particulars of income.

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