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TMI Blog2017 (4) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 - ITA No. 1297/PUN/2014 - - - Dated:- 31-3-2017 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM Assessee by : S/Shri Farooq V. Irani Abhijit Kulkarni Revenue by : Shri Anil Chaware ORDER Per Sushma Chowla, JM This appeal filed by the assessee is against the order of CIT(A)-V, Pune, dated 14.03.2014 relating to assessment year 2003-04 against levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1) The Assessing Officer holding and the learned Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agreement was entered into on 28.03.2002 between Mahindra Mahindra and GKN Sinter Metals Holdings Ltd., UK for shares sale and purchase. The assessee further claimed that debts due from various customers in the normal course of business were assigned to Mahindra Mahindra in terms of agreement dated 18.07.2002. The said debts were identified on the basis of fair estimate of chances of recovery of the said debts. The debts were assigned at ₹ 1/- to Mahindra Mahindra and the remaining amount of ₹ 1,34,99,999/- was written off in the books of account as bad debts by crediting the accounts of respective parties. The assessee claimed the said amount as bad debts under section 36(1)(vii) of the Act. The assessee further stated that the amounts were written off on the basis of report of Ernst Young as the same were considered doubtful. The Assessing Officer observed that in respect of most of the charges, there were regular transactions throughout the year and the payments were received regularly and periodically and therefore, it was not factually correct that the amount was bad debt. Further, the Assessing Officer observed that as per plain reading of the terms of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assignment due to transfer of the debtors by a deed of assignment for a consideration of ₹ 1/-. In our opinion, for claiming the bad debt as allowable under the provisions of the Income Tax Act the same must be written off in conformity with the provisions of the Income Tax Act. By transferring the debt of ₹ 1.35 Crores to Mahindra Mahindra Ltd. for ₹ 1/-, the assessee has lost the ownership over the debts. Therefore, by doing this the assessee has made the provisions of section 41(4) redundant. As per the said provisions if any amount is recovered in future on account deduction allowed in respect of bad debts or part thereof then the same shall be deemed to be the profits and gains of business or profession in that year and accordingly chargeable to tax. However, in the instant case the assessee has not shown any income on account of recovery of part of such debt since the assessee has assigned the debts to Mahindra Mahindra and as per submission of the Ld. Counsel for the assessee Mahindra Mahindra has offered the same to tax. Therefore, the first proposition argued by the Ld. Counsel for the assessee being without any merit is dismissed. 20.6 Now c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant company. Therefore, by virtue of supplementary agreement dated 18.07.2002, debts of appellant company of ₹ 1,35,00,000/- were assigned to Mahindra Mahindra Ltd., for ₹ 1. The difference of ₹ 1,34,99,999/- was claimed as Bad Debts by the appellant company. This claim was not allowable as the same was not Bad Debts. The stand of the Assessing Officer has been confirmed at the level of CIT(A) as well as Tribunal. From the facts of the case, it is clear that the appellant company has tried to camouflage the assignment of debt to Mahindra Mahindra Ltd., as Bad Debts deliberately to claim deduction knowing fully well that the same does not qualify to be Bad Debts. For doing so the appellant company tried to lean on the report of Ernst Young which was nothing but collusive arrangement to give a colour of Bad Debts to the book debts assigned by the appellant company. This claim of the appellant which was made on the basis of report of Ernst Young, has been nailed by the Assessing Officer wherein the Assessing Officer noticed that 53.40% of the debts were recovered by Mahindra Mahindra Ltd., in the same financial year. Thus, from the above facts, it is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccurate particulars of income which expression has been explained by the Hon ble Supreme Court in CIT Vs Reliance Petroproducts (P) Ltd. (2010) 189 Taxman 322 (SC). It was stressed by him that applying the principle laid down by the Hon ble Supreme Court in CIT Vs Reliance Petroproducts (P) Ltd. (supra), wherein it was held that if the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as concealment of income on its part and merely because the claim of assessee was not accepted by the Revenue, that itself would not attract penalty under section 271(1)(c) of the Act. 10. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of Assessing Officer and CIT(A). He further stressed that where the expenditure has been found to be not allowable in the hands of assessee, then there is merit in levy of penalty under section 271(1)(c) of the Act. 11. We have heard the rival contentions and perused the record. The issue arising in the present appeal is against levy of penalty for furnishing inaccurate particulars of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicated is whether in the given circumstances, where the addition has been made in the hands of assessee, is it justifiable to levy penalty under section 271(1)(c) of the Act. The merits of the disallowance cannot be gone into while deciding the penalty proceedings. 12. Now, coming to the next proposition raised by the learned Authorized Representative for the assessee as to where it had made full and complete disclosure of its particulars of income and merely because an addition has been made in the hands of assessee that does not justify the levy of penalty. Further, the learned Authorized Representative for the assessee also claimed that at very least, the addition made in the case was debatable and therefore, levy of penalty was not justified. Traversing the factual aspects of the case, the auditor in the audit report itself had made a declaration of extraordinary items by way of notings in Note 3(a) and (b) of Schedule XV of the audited accounts. It was reported by the auditor itself that the assessee had assigned debts aggregating to ₹ 1.35 crores to Mahindra Mahindra for consideration of ₹ 1/-. Accordingly, the loss on assignment has been written off in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. 10. It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same, no penalty under section 271(1)(c) of the Act could be levied. 15. Now, coming to the last proposition raised by the learned Authorized Representative for the assessee i.e. the appeal against the quantum addition has been admitted by the Hon ble High Court, then the assessee is not liable to levy of penalty under section 271(1)(c) of the Act. The assessee has filed on record the order of Hon ble Bombay High Court dated 07.06.2016, wherein the appeal of assessee has been admitted on the following substantial question of law:- (ii) Whether the Tribunal ought to have upheld the Appellant s claim for a deduction of ₹ 1,34,99,999/- as a bad debt under Section 36(i)(vii) of the Act or, without prejudice as a business loss under Section 28/Section 29 of the Act? 16. In this background, the learned Authorized Representative for the assessee has relied on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. M/s. Advaita Estate Development Pvt. Ltd. vide judgment dated 17.02.2017. The Hon ble High Court held as under:- 3. The impugned order of the Tribunal allowed the respondent-assessee's appeal and deleted the penalty imposed. This on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) was also followed by this Court in CIT-8 vs. Aditya Birla Power Co. Ltd. in Income Tax Appeal No. 851 of 2014 rendered on 2nd December, 2015 . 6. However, Mr. Tejveer Singh, learned Counsel appearing for the appellant Revenue seeks to distinguish the decision of this Court in Nayan Builders and Developers Pvt. Ltd. (supra) on the ground that this Court had after recording the fact that where appeals from orders in quantum proceedings of this Court have been admitted as giving rise to substantial question of law then that itself discloses that the issue is debatable. However, Mr. Singh points out that it also further records In our view there was no case made out for imposition of penalty and the same was rightly set aside. . On the basis of the above observation, it is contention of Mr. Tejveer Singh that the appeal from penalty proceeding was not admitted by this Court as on merits no case for imposition of penalty was made out. 7. Mr. Dalal, the learned Counsel for the respondent-assessee invited our attention to the order of the Tribunal dated 18th March, 2011 in the case of Nayan Builders and Developers Pvt. Ltd (supra). On perusal of the Tribunal order dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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