2016 (3) TMI 272 - AT - Income Tax

Penalty u/s 271(1)(c) - addition on account of cash collateral offered to ICICI Bank - whether assessee s claim on the amount kept in cash collateral is not permissible as it is mere diversion of income by overriding title - Held that - Assessee company claims that its case falls in capacity of contractor and the money is retained for a certain period and retention money shall not be taxable until the retention period is over and the assessee relied on the decisions but amount kept in cash collected is not a prudent practice and it should be subjected to tax. In this case the money has been appropriated by ICICI Bank after collection and the assessee has claimed the deficiency in realization as Bad debts. The income of 2% was not considered in profit and loss account by assessee. We are of the opinion that these are incorrect treatment given by the assessee company and have no sanction of law and also not supported by any Accounting standard. The assessee claim is nothing but false claim and furnishing inaccurate particulars of income. The explanations given by the assessee cannot be considered as bonafide and assessee tried to conceal the income by misrepresenting the case by not bringing true income to the books of accounts. We rely on the decision of DCIT vs. Rattha Cidadines Boulevard Chennai (P) Ltd (2015 (11) TMI 991 - ITAT CHENNAI) where it observed that Auditor s report cannot override provisions of act and, thus, merely because assessee s false claim for deduction is supported by Chartered Accountant s opinion, this fact per se cannot absolve assessee from penalty under section 271(1)(c) of the Act. Accordingly, we set aside the order of the Commissioner of Income Tax (Appeals) and restore the order of Assessing Officer confirming penalty - Decided against assessee.

Summary

Issues:
Challenge to order of Commissioner of Income Tax (Appeals) under ITA No.414/2013-14 for assessment year 2007-2008 u/s.271(1)(c) of the Income Tax Act, 1961.

Analysis:
1. Issue of Permissibility of Cash Collateral:
The department contested the allowance of the claim on the amount kept in cash collateral, arguing it as a mere diversion of income by overriding title. The Commissioner of Income Tax (Appeals) was urged to uphold the penalty under u/s.271(1)(c) based on the submission of inaccurate particulars and questionable revenue recognition details by the assessee. The department cited the decision of the Hon'ble Delhi High Court in CIT vs. Zoom Communication to support the penalty levy.

2. System of Accounting and Revenue Recognition:
The dispute revolved around the system of accounting followed by the company regarding loans provided to self-help groups. The company had sold loans to ICICI Bank based on a Bilateral Buy Out Basis, requiring cash collateral for potential defaults. The Assessing Officer alleged inaccuracies in the particulars submitted by the assessee, leading to a penalty imposition. The company, however, argued that it followed statutory audit accounting standards and accounting policies in accordance with ICAI guidelines.

3. Judicial Interpretation and Decision:
The company, being a Non-Banking Financial Company, contended that the retention money for potential loan defaults should not be taxable until the contract period expires. The Commissioner of Income Tax (Appeals) considered the company's accounting policies and directed the Assessing Officer to delete the penalty, emphasizing compliance with Accounting Standard-9 regarding revenue recognition. However, the Revenue challenged this decision, arguing that the company concealed income and furnished inaccurate particulars.

4. Final Tribunal Decision:
After considering both parties' submissions, the Tribunal found the company's treatment of cash collateral and revenue recognition to be incorrect and unsupported by law or accounting standards. Relying on the decision in DCIT vs. Rattha Cidadines Boulevard Chennai (P) Ltd, the Tribunal concluded that the company's explanations were not bona fide and amounted to concealing income. Consequently, the Tribunal set aside the Commissioner of Income Tax (Appeals) order, restored the Assessing Officer's decision, and allowed the appeal of the Revenue.

In conclusion, the Tribunal's judgment highlighted the importance of accurate revenue recognition and adherence to accounting standards, ultimately leading to the restoration of the penalty imposed by the Assessing Officer due to the company's false claims and inaccurate particulars regarding cash collateral and revenue treatment.