2017 (4) TMI 296 - AT - Income Tax

Levy of penalty under section 271(1)(c) - disallowance of loss arising on account of assignment of bad debts - Held that - Where the assessee had filed full and complete particulars in the audit report itself and had tried to justify the admissibility of the said expenditure being revenue, but merely because the said expenditure has not be allowed in the hands of assessee, does not warrant the levy of penalty under section 271(1)(c) of the Act It is not the case of Revenue that the details which were supplied by the assessee in the return of income, are not accurate, not exact or correct or not according to the truth or erroneous. In the present set of facts also, the assessee had furnished the particulars of its income and had also made a declaration with regard to its claim of expenditure which was found to be not admissible and the expenditure claimed was disallowed in the hands of assessee. However, such disallowance of expenses cannot tantamount to furnishing of inaccurate particulars of income. Accordingly, we hold so. In the absence of the same, no penalty under section 271(1)(c) of the Act could be levied. No penalty is leviable under section 271(1)(c) of the Act on the ground that the quantum appeal filed by the assessee is admitted by the Hon ble High Court on substantial question of law. Since the appeal on substantial question of law is admitted and pending before the Hon ble High Court, the issue is debatable and on disallowance of such debatable issue, there is no merit in levy of penalty under section 271(1)(c) of the Act. Accordingly, we delete penalty levied under section 271(1)(c) of the Act in respect of disallowance - Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income.
2. Disallowance of loss arising on account of assignment of bad debts.
3. Validity of the penalty proceedings and proper satisfaction by the Assessing Officer.
4. Full and complete disclosure by the assessee.
5. Admission of quantum appeal by the High Court indicating the issue as debatable.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in this appeal is the levy of penalty under section 271(1)(c) for furnishing inaccurate particulars of income. The Tribunal noted that penalty under this section is attracted when the assessee either conceals income or furnishes inaccurate particulars. In this case, the Assessing Officer disallowed the assessee's claim of bad debts amounting to ?1,34,99,999, considering it a colourable device to compensate Mahindra & Mahindra for relinquishing its shareholding. The Tribunal emphasized that the penalty proceedings are independent of quantum proceedings and focused on whether the circumstances justified the levy of penalty.

2. Disallowance of Loss on Assignment of Bad Debts:
The assessee had assigned debts aggregating ?1.35 crores to Mahindra & Mahindra for ?1 and claimed the difference as bad debts under section 36(1)(vii). The Assessing Officer and CIT(A) disallowed this claim, viewing it as a capital expenditure and not allowable as revenue expenses. The Tribunal upheld this disallowance, noting that the assignment of debts was an intrinsic part of the share sale agreement and was not a genuine business loss.

3. Validity of Penalty Proceedings and Proper Satisfaction by the Assessing Officer:
The assessee argued that the penalty was illegal and without jurisdiction as no proper satisfaction was reached by the Assessing Officer. However, the Tribunal found that the Assessing Officer had recorded satisfaction in the assessment order, stating that penalty proceedings were initiated separately for furnishing inaccurate particulars of income. Thus, the Tribunal dismissed the assessee's contention regarding the lack of proper satisfaction.

4. Full and Complete Disclosure by the Assessee:
The assessee contended that it had made full and complete disclosure of all particulars of income in the audit report and that merely because the claim was not accepted by the Revenue, it did not warrant penalty. The Tribunal acknowledged that the assessee had disclosed the assignment of debts in the audit report and tried to justify the claim based on a professional report. The Tribunal referred to the Supreme Court's decision in CIT Vs Reliance Petroproducts (P) Ltd., which held that making an incorrect claim in law does not amount to furnishing inaccurate particulars of income.

5. Admission of Quantum Appeal by the High Court:
The assessee highlighted that its quantum appeal had been admitted by the High Court, indicating that the issue was debatable and thus, penalty was not justified. The Tribunal referred to the Bombay High Court's decisions in CIT Vs. M/s. Advaita Estate Development Pvt. Ltd. and CIT Vs. M/s. Aditya Birla Power Co. Ltd., which held that the admission of a quantum appeal on substantial questions of law indicates the issue is debatable, and penalty should not be imposed. The Tribunal applied this principle and concluded that since the quantum appeal was admitted by the High Court, the issue was debatable, and no penalty under section 271(1)(c) was warranted.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that no penalty under section 271(1)(c) could be levied as the assessee had made full and complete disclosure, and the issue was debatable, evidenced by the High Court admitting the quantum appeal. The Assessing Officer was directed to delete the penalty.