2016 (8) TMI 863 - AT - Income Tax

Penalty under section 271(1)(c) - write off of capital work in progress - Held that - Assessee has duly disclosed the fact of write off of capital work in progress in the audited financial statements by way of a note and hence, there cannot be any allegation of furnishing of inaccurate particulars. It is not the case that the write off has been found to be bogus. The AO has himself accepted that it was a loss, albeit a capital loss, rather than a revenue loss as claimed by the assessee. In the case of CIT vs. Vamchampigons & Agro Produce (2005 (11) TMI 47 - DELHI High Court ) held that Assessee having shown the income from sale of debentures as capital gains, penalty under s. 271(l)(c) could not be levied on the basis that the AO has assessed the said income as business income and not as capital gains. The Hon ble Apex Court in the matter of CIT Vs Reliance Petroproducts Pvt. Ltd 2010 (3) TMI 80 - SUPREME COURT held that where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. A mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. - Decided in favour of assessee.

Summary

Issues:
- Appeal against penalty under section 271(1)(c)
- Claim of revenue loss vs. capital loss
- Disclosure of write-off in audited financial statements

Analysis:
1. The appeal was against the penalty imposed under section 271(1)(c) for the assessment year 2009-10. The appellant, a public limited company engaged in trading television picture tubes, challenged the penalty upheld by the Commissioner of Income Tax (Appeals) X, New Delhi.

2. The primary issue revolved around the nature of the loss claimed by the assessee - whether it should be treated as a revenue loss or a capital loss. The company had decided to set up a new project for metal parts due to declining market for black and white picture tubes. However, the project was eventually dropped, leading to the write-off of machinery purchased for the project. The Assessing Officer accepted the loss but categorized it as a capital expenditure, disallowing it as a revenue loss.

3. The crux of the matter was the disclosure of the write-off in the audited financial statements. The appellant contended that the write-off was correctly disclosed in the annual accounts, and there was no intention to furnish inaccurate particulars. The Assessing Officer had not raised any doubts regarding the genuineness or accuracy of the claim during the original assessment.

4. The Tribunal, after considering the submissions and precedents, held that penalty proceedings are distinct from assessment proceedings. It noted that the write-off was duly disclosed in the audited financial statements, and there was no allegation of furnishing inaccurate particulars. Citing relevant case laws, the Tribunal emphasized that a debatable claim does not warrant a penalty under section 271(1)(c).

5. Relying on the decision of the Hon'ble Apex Court in CIT vs. Reliance Petro Products Ltd., the Tribunal set aside the penalty imposed under section 271(1)(c), directing the Assessing Officer to delete the penalty. The Tribunal emphasized that merely making an incorrect claim, which is not sustainable in law, does not amount to furnishing inaccurate particulars regarding the income of the assessee.

6. Consequently, the appeal of the assessee was allowed, and the penalty under section 271(1)(c) was directed to be deleted. The order was pronounced in the Open Court on 23rd May 2016.