No Penalty on claim of Provision for Doubtful Debts

Decision of Income tax Appellate Tribunal Indore Bench in case of DCIT v. NEPA Limited (ITA 683/Ind/2013)

In this case the Assessee was a Public Sector undertaking and had omitted to add back Provision for Bad and Doubtful Debts. During the Assessment the mistake was noticed and the claim was conceded and disallowance of provision was made. However the learned AO levied penalty u/s 271(1)(c) of the Act on the ground that if the case would not have selected for scrutiny the Assessee would have succeeded in claiming such Provision. Against such order the Assessee went into appeal and the learned CIT(A) deleted the penalty holding that

• It is a case of clear cut mistake and the Assessing Officer could have pointed out and dealt with this mistake u/s 143(1) of the Act while processing the return.
• there is no motive to claim excess deduction, it cannot be considered as concealment or furnishing of inaccurate particulars of income, especially when there were carried forward business losses

Against such order the Department preferred appeal before ITAT where the ITAT dismissed the appeal on considering following contentions:

Assessee’s contentions

• On merits the Provision for Doubtful debts is allowable in case of Companies based on decision of Supreme Court in case of Vijaya Bank vs. CIT, 323 ITR 166 ( S.C.) wherein it was categorically held that in the case of companies the provisions for doubtful debts can be allowed as a deduction u/s 36(1)(vii) of the Act.
• In view of the carried forward losses, there was not motive of excess claim.
• No penalty can be levied on when the mistake/erroneous claim
• No penalty can be levied, once the mistake is noticed and the assessee has agreed to withdraw the claim during Assessment itself.
• Explanation 1 to Section 271(1)(c) cannot be invoked when the charge is ‘furnishing inaccurate particulars of income’

Department’s contentions

It is not a case where the assessee has voluntarily withdrawn the claim. The claim has been withdrawn once it has been brought to the knowledge of the assessee by the Assessing Officer.

Tribunal Held dismissing the Appeal

“Explanation (1) is a deeming provision and it is applicable when an amount is added or disallowed in computation of total income is deemed to represent the income in respect of which particulars have been concealed. Explanation (1) is not applicable in this case of furnishing inaccurate particulars of income. In this case, we noted that the Assessing Officer has initiated penalty proceedings u/s 271(1)(c) without pointing out whether the assessee has concealed the particulars of income. The penalty ultimately was levied on the assessee for furnishing inaccurate particulars by observing that the case of the assessee is covered by the Explanation to Section 271(1)(c). We may observe that in the case of furnishing inaccurate particulars of income, the onus is on the Revenue to, prove that the assessee had furnished the inaccurate particulars, while in the case of concealment of particulars of income, where the Explanation (1) is applicable, the onus is on the assessee to prove that he has not concealed the particulars of income. As is apparent from the Explanation, this explanation clearly states where in respect of any facts material to the computation of total income of any person such person fails to offer an explanation or offers explanation which is found by the Assessing Officer to be false or such person offers an explanation, which he is not able to substantiate or fails to prove that such explanation is bona fide and with all the facts relating to the same and material to the computation of his total income have been disclosed by him. This is not denied that the particulars of provisions of doubtful debts have duly been shown by the assessee and debited in the audited profit and loss account. It is also not denied that the assessee has submitted the explanation in reply to show cause notice issued by the Assessing Officer. Even though the Assessing Officer, in our opinion, failed to discharge his onus as he was not sure at the initiation of penalty u/s 271(1)(c) for which specific charge penalty has been initiated by the Assessing Officer. Even while levying the penalty also, the Assessing Officer simply relied on the explanation to Section 271(1)(c) even though he levied the penalty for furnishing the inaccurate particulars of income. This is apparent from the provisions of Section 271(1)(c) that explanation of Section 271(1)(c) is not applicable in case inaccurate particulars are furnished. Therefore, in our opinion, the basis of levy of penalty itself is not correct. In this regard, we rely on the decision of Hon’ble Gujarat High Court in the case of CIT vs. New Sorathia Engineering Co. vs. CIT, (2006) 282 ITR 642”. (Para8)

Editor’s Note : (Contrast to Delhi High Court CIT v. Zoom Communication (P.) Ltd. [2010] 327 ITR 510/191 Taxman 179)