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Wednesday, 04 May 2016 10:51

Penalty u/s 271(1)(c) Cannot be levied When Claim of the Assessee became Untenable by virtue of Retrospective Operation of Law - Ahmedabad Tribunal

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Penalty u/s 271(1)(c) - Concealed or Furnished Inaccurate Particulars of Income 

When claim of the assessee became untenable by virtue of retrospective operation of law, then the assessee has not furnished any inaccurate particulars of income

Facts

1. Assessee company at the relevant time was engaged in the business of manufacturing non-edible oil and selling the same in the export/domestic market

2. It has filed its return on 31.12.1999 declaring total loss of Rs.49,36,94,190/-

3. An assessment order was passed under section 143(3) on 27.3.2002

4. The AO has made five additions to the income of the assessee, which has reduced the loss claimed by the assessee

5. The assessee has made a provision for bad and doubtful debts for a sum of Rs.35.50 crores

6. This provision was disallowed by the AO

7. The ld.AO has initiated penalty proceedings under section 271(1)(c) of the Act. A show cause notice under section 271(1)(c) r.w.s. 274 was issued and served upon the assessee

8. During the course of penalty proceedings, it was contended by the assessee it has not furnished any inaccurate particulars of income. The provision was made with regard to bad and doubtful debts. Before the amendment carried out in section 36(i)(vii) by Finance Act, 2001 with retrospective effect from 1.4.1989, the assessee was entitled for the deduction. The ld.AO was of the opinion that prior to the amendment carried out in section 36(i)(vii), the assessee was required to bring demonstrative evidence on record exhibiting the fact that debts has become actually bad. Since, during the course of assessment proceeding the assessee has surrendered this amount on account of change in the position of law, therefore, it did not bring evidence to that effect

9. Hence, it was an attempt at the end of the assessee to conceal the income by furnishing inaccurate particulars. The AO has imposed a penalty of Rs.12,42,50,000/-

10. Dissatisfied with the action of the AO, the assessee carried the matter in appeal

11. The ld.CIT(A) has allowed the appeal of the assessee and deleted the penalty

12. Revenue moved to the Tribunal

13. Tribunal dismissed the appeal and deleted the penalty 

Adjudication

If we examine the facts of the present case, then it would reveal that the assessee had created provision for bad and doubtful debts. This provision was created on the strength of Hon’ble Gujarat High Court’s decision in the case of Sarangpura Cotton Mfg. Co. Ltd.Vs. CIT, 143 ITR 166 (Guj). It has filed its return on 31.12.1999. The amendment was applied with retrospective effect. By operation of this amended law, the claim of the bad debts cannot be made by creating a provision for bad and doubtful debts. Accordingly, the claim of the assessee becomes untenable, and the claim was withdrawn during the course of assessment proceedings. In such situation, there cannot be any allegation against the assessee that it has furnished inaccurate particulars. The AO has not specified charge against the assessee either in the assessment order or in the penalty order, whether the assessee has furnished inaccurate particulars or concealed the income. For the purpose of reference, we have drawn an inference that impliedly it is furnishing of inaccurate particulars, otherwise, the AO has not charged he assessee with specific allegation. The assessee has taken a specific plea to this effect before the ld.CIT(A). The ld.CIT(A) has recorded a finding that the claim of the assessee became untenable by virtue of retrospective operation of law, otherwise, the assessee could have demonstrated the allowance of its claim. According to us, the assessee has not furnished any inaccurate particulars, which can expose it to the penalty proceedings under section 271(1)(c) of the Act. The ld.CIT(A) has rightly deleted the penalty and we do not find any merit in this appeal. It is dismissed.

Cases referred to

1. Sarangpura Cotton Mfg. Co. Ltd.Vs. CIT, 143 ITR 166 (Guj).

2. New Sorthaia Engg. Co. vs. CIT 282 ITR 642 (Guj)

3. CIT vs. Manu Engg. 122 ITR 306 (Guj)

4. A.M.Shah vs. CIT 238 ITR 415 (Guj)

5. Delip N. Shroff vs. JCIT 291 ITR 519 (SC)

6. CIT vs. Zoom Communication (P) Ltd. 191 Taxman 179 (Del.)

7. Anantharam Versinghaiah & Co. vs. CIT 123 ITR 457 (SC)

8. CIT vs. Khoday Enwarsa & Sons 83 ITR 369 (SC)

9. CIT vs. Reliance Petro Products 322 ITR 158 SC

10. Vijya Bank vs. CIT 323 ITR 166

Additional Info

Read 4393 times Last modified on Wednesday, 04 May 2016 11:30
Deepak Kumar

A Post Graduate and Chartered Accountant Deepak Sinha is a member of Taxpundit's core team. An analytical, result oriented professional with more than 10 years of combined experience in industry and consultancy.

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1 comment

  • Comment Link I.B.Patel Wednesday, 11 October 2017 14:22 posted by I.B.Patel

    Very useful for net users....Thanks for good cause...

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