2018 (4) TMI 268 - HC - Income Tax

Penalty u/s 271(1)(c) - provision for retrofitment charges in anticipation of expenditure - Held that - It has been observed by the authorities below that assesssee had clearly mentioned about the retrofitment expenses in profit and loss accounts for the year ended 31.3.2007 and the provisions for retrofitment expenses under the head, current liabilities in the balance sheet as on 31.3.2007 The explanation furnished by the assessee does not lead to reasonable and positive inference that the assessee s case is false. The assessee was able to show that there was dispute between assessee and M/s Atul Auto Ltd. one of the customers of the assessee. The assessee has created provision for retrofitment charges in anticipation of expenditure and upon the suit being withdrawn, the assessee had offered the amount in the immediately succeeding year i.e. assessment year 2008-09. All these facts would show that the observations of the Assessing Officer that the assessee concealed the fact is not justified. - Decided in favour of assessee

Summary

Issues:
Assessment of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2007-08.

Analysis:
1. The appellant challenged the dismissal of their appeal by the Tribunal, claiming that the scope of Section 271(1)(c) and its explanation was not properly considered. The appellant argued that the reversal of a claim in a subsequent assessment year did not absolve them of penalty, especially since the claim was corrected only after scrutiny for the initial assessment year had begun. The appellant contended that the Tribunal erred in facts and law by not acknowledging the incorrect disclosure of material facts and the lack of a legal basis for the claim. The appellant cited judgments from the Delhi High Court to support their arguments, alleging that the Tribunal's decision was flawed.

2. The respondent, on the other hand, supported the Tribunal's decision, stating that all facts and legal aspects were thoroughly considered. The respondent argued that the appellant's actions did not result in any gain, as there was an overall loss reported. The respondent highlighted that the provision for retrofitment expenses was disclosed in the financial statements, indicating no intention to conceal income. Additionally, the respondent mentioned a dispute with another party regarding the amount in question, which further demonstrated the bona fides of the appellant.

3. Upon reviewing the case, the Court noted that the appellant had provided a valid explanation for the provisions made for retrofitment expenses, which were related to a civil suit filed against them. The Court agreed with the lower authorities that the appellant had not concealed any particulars of income, as the expenses were duly mentioned in the financial records. The Court found that the appellant's actions were based on genuine expectations of future expenditures, and once the dispute was resolved, the amount was appropriately adjusted in the subsequent year. Therefore, the Court concluded that there was no justification for imposing a penalty under Section 271(1)(c) of the IT Act.

4. Ultimately, the Court held that no substantial question of law arose from the appeal, leading to its dismissal without any costs. The judgment emphasized the importance of genuine disclosure and the context surrounding financial decisions to determine the applicability of penalties under tax laws.