2010 (9) TMI 141 - HC - Income Tax

Penalty - provision for doubtful debts - because of pendency of legal proceedings being initiated against the debtors, the respondent-assessee had not actually written off its debts in the books of account - Tribunal observed that the assessee had duly reduced the sale proceeds from the gross block of assets for computing depreciation - assessee had committed a bona-fide mistake in not adding it back while computing the taxable income Held that - explanation furnished by the respondent-assessee in the present case is bonafide and as the said finding had not been controverted by the DR before the Tribunal Appeal is dismissed.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal under Section 260A of Income Tax Act, 1961 for Assessment Year 2001-2002; Deletion of penalty under Section 271(1)(c) of the Act; Bonafide explanation by respondent-assessee; Mistake in computation of taxable income; Applicability of Explanation 1 to Section 271.

Analysis:
The appeal was filed challenging the order of the Income Tax Appellate Tribunal (Tribunal) under Section 260A of the Income Tax Act, 1961 for the Assessment Year 2001-2002. The Tribunal had deleted the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Act. Regarding the penalty related to provision for doubtful debts, the Tribunal found the explanation provided by the respondent-assessee to be bonafide and upheld the Commissioner of Income Tax (Appeals) finding. Additionally, concerning the loss on sale of assets, the Tribunal noted that the assessee had made a genuine mistake in not adding it back while computing taxable income, which the AO failed to investigate. The Tribunal concluded that the respondent-assessee's explanation was bonafide and genuine.

The Revenue contended that the Tribunal erred in law by deleting the penalty and accepting the respondent-assessee's explanation as bonafide. The Revenue relied on a judgment of the Supreme Court in Union of India Vs. Dharamendra Textiles Processors, (2008) 13, SCC 369. The Court analyzed the Dharamendra Textile Processors case, stating that the applicability of Section 271(1)(c) hinges on the conditions expressly stated in the Section. If the assessee can bring its case within Explanation 1 to Section 271, then no penalty can be imposed.

The Court observed that the respondent-assessee had not written off its debts in the books of account due to pending legal proceedings against debtors. It agreed with the Tribunal that the explanation provided by the respondent-assessee was bonafide, and as the finding was not challenged by the DR before the Tribunal, the Court upheld the Tribunal's decision. Consequently, the appeal was dismissed as lacking merit.