2019 (9) TMI 441 - AT - Income Tax

Penalty u/s 271(1)(c) - expenditure towards bad debts allowable u/s 36(1)(vii) - claim was disallowed consequent to the survey - HELD THAT - Assessee has prepared two financial statements by writing off two different amounts as bad debts. The company has approved the amount as bad debts in the AGM. Since the Board of Directors proposed to disallow two different amounts as bad debts the company prepared two sets of financial statements. Assessee as claimed in the submission supposed to file return of income with the approved balance sheet with the higher bad debts but ended up filing the return of income as bad debts resulted in declaring higher profit. The assessee filed revised return of income in order to rectify the mistake. Subsequently because of survey the AO found that the assessee has declared less income because of preparing two financial statements. AO could not establish that the bad debts claimed by the assessee in revised return of income was bogus or that the claim is not as per law. Assessee can declare the bad debts as approved by the shareholder in AGM. Since there was a mistake the assessee can revise the return. As the return of income was again revised after survey and due to these circumstances the AO came to the conclusion that assessee revised the return of income in order to declare less income to avoid tax which is not supported by any evidence. The conclusion reached by CIT(A) is proper and we are inclined to accept the findings of the CIT(A). Accordingly ground raised by the revenue is dismissed.

Issues Involved:
1. Validity of the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. Whether the assessee concealed income or furnished inaccurate particulars of income.
3. The legitimacy of the revised return filed by the assessee.
4. The impact of the survey operation on the revised return and penalty proceedings.

Issue-wise Detailed Analysis:

1. Validity of the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961:

The revenue filed an appeal against the CIT(A)'s order, which deleted the penalty levied by the AO under Section 271(1)(c). The CIT(A) observed that the assessee had two financial statements with different bad debt claims, both dated the same. The board resolution to claim higher bad debts was not disputed. The assessee initially claimed lower bad debts and later revised the return to reflect the board resolution. However, during the survey, to avoid litigation, the assessee reverted to the original lower bad debt claim.

The CIT(A) concluded that the entire bad debt amount was written off in the books and was eligible under Section 36(1)(vii). The revised return was an attempt to correct an initial mistake, and there was no concealment or furnishing of inaccurate particulars. Thus, the penalty under Section 271(1)(c) was not justified.

2. Whether the assessee concealed income or furnished inaccurate particulars of income:

The AO argued that the assessee intended to evade tax by filing a revised return with lower income. The penalty was based on the difference between the original and revised bad debt claims. However, the CIT(A) found that the higher bad debt claim was genuine and supported by a board resolution. The re-revised return was filed to avoid litigation, not to conceal income or furnish inaccurate particulars. The CIT(A) and the Tribunal both agreed that there was no evidence of concealment or inaccurate particulars, thus no penalty was warranted.

3. The legitimacy of the revised return filed by the assessee:

The assessee initially filed a return with a lower bad debt claim, later revised it to reflect the board resolution of higher bad debts, and then reverted to the original claim during the survey. The CIT(A) noted that the revised claim was legal and admissible, as the entire bad debt was written off in the books. The Tribunal affirmed that the revised return was a legitimate correction of an initial mistake, and the re-revised return was filed to avoid further disputes, not to mislead the tax authorities.

4. The impact of the survey operation on the revised return and penalty proceedings:

The survey revealed two sets of financial statements, prompting the assessee to revert to the original lower bad debt claim. The AO interpreted this as an attempt to evade tax, but the CIT(A) and the Tribunal found that the higher bad debt claim was genuine and supported by the board resolution. The re-revised return was a measure to avoid litigation, not an admission of wrongdoing. The Tribunal upheld the CIT(A)'s decision to delete the penalty, as the assessee's actions were bona fide and there was no evidence of tax evasion.

Conclusion:

The Tribunal dismissed the revenue's appeal, agreeing with the CIT(A) that the assessee did not conceal income or furnish inaccurate particulars. The revised return was a legitimate correction, and the re-revised return was filed to avoid litigation. Consequently, the penalty under Section 271(1)(c) was not justified, and the appeal was dismissed.

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