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2011 (1) TMI 1057 - AT - Income TaxPenalty u/s 271 (1)(c) - Held that - The penalty can be levied when income is concealed. Penalty can also be levied for furnishing inaccurate particulars of income. However, where the explanation is not bona fide, the penalty can still be levied. Thus, penalty has been levied in respect of deduction of Income-tax, claim u/s 35D etc. According to us, the case of the assessee stands on worse footing than such cases because its claim is based on a device formed to mislead the Assessing Officer. Further, full facts regarding the claim were not furnished in the return of income. Accordingly the ratio in the case of Escorts Finance Limited 2009 (8) TMI 677 - DELHI HIGH COURT , and Zoom Communication Private Limited 2010 (5) TMI 34 - DELHI HIGH COURT is applicable to the facts of the case. Thus, it is a fit case for levy of penalty.
Issues Involved:
1. Deductibility of Rs. 50 lakh as bad debt. 2. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Deductibility of Rs. 50 lakh as bad debt: The assessee company filed its return declaring a total income of Rs. 1,43,40,680/-. During scrutiny, it was found that the assessee had deposited Rs. 50 lakh as share application money with M/s Dimension Investments & Securities Limited. No shares were allotted, and the assessee converted the share application money into a loan, which was later written off as a bad debt. The Assessing Officer (AO) disallowed the claim, stating that the amount was not taken into account for computing the income of the assessee in any year, and M/s Dimension Investments & Securities Limited did not acknowledge the debt. Consequently, the amount could not be termed as bad debt. The AO also noted that the assessee was not engaged in the business of buying and selling shares, and the deposit was made to acquire a capital asset, not in the ordinary course of business. Therefore, the amount was not deductible under Sections 28 or 29 of the Income Tax Act. The AO computed the total income at Rs. 1,93,40,680/- and initiated penalty proceedings under Section 271(1)(c). 2. Validity of penalty proceedings under Section 271(1)(c): The AO levied a penalty of Rs. 19.25 lakh on the assessee, stating that the claim of bad debt was not bona fide. The assessee appealed to the CIT(A), who deleted the penalty, observing that the explanation tendered by the assessee was bona fide and all facts were disclosed in the return of income. The revenue then appealed to the ITAT. The revenue argued that the conversion of the deposit into a loan without the concurrence of M/s Dimension Investments & Securities Limited was a device to claim a deduction. The assessee's counsel argued that the AO did not properly assume jurisdiction to levy the penalty as no satisfaction was recorded during the initiation of penalty proceedings. The counsel also contended that all facts were disclosed and the explanation was bona fide. The ITAT considered the facts and submissions. It noted that the AO had elaborately examined the claim and found that M/s Dimension Investments & Securities Limited never acknowledged the debt, and the assessee was not in the business of dealing in shares. The advance was on capital account and could not be deducted under Sections 28 or 29. The ITAT held that the AO had recorded satisfaction as required and dismissed the assessee's argument regarding jurisdiction. On the merits, the ITAT found that the assessee had not made full disclosure in the return of income. The letters written to M/s Dimension Investments & Securities Limited were not supported by any reply or confirmation from the latter. The explanation provided by the assessee was not supported by any legal advice on record. The ITAT concluded that the conversion of the deposit into a loan was a device to claim a deduction, which was otherwise inadmissible. The ITAT held that the assessee's claim was ex-facie bogus and not bona fide, making the assessee liable for penalty under Section 271(1)(c). Conclusion: The ITAT allowed the revenue's appeal, confirming the penalty of Rs. 19.25 lakh imposed by the AO. The ITAT held that the assessee's claim of bad debt was not bona fide and was based on a device to mislead the AO. The decision was pronounced in open court on 21.01.2011.
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