Brief about the case
The assessee was an apex marketing society in cooperative sector in West Bengal involved in the activities of marketing, procurement and distribution of fertilizer and other agricultural inputs like jute, paddy, seeds, and pesticides, etc. through various members, primary co-operative societies. The assessee has filed the return at an income of Rs.1,32,45,463/- on 03.11.2009. The assessment was completed on the returned income of Rs.1,32,45,460/- by making certain disallowances and allowing the set-off of the business loss for the assessment years 2003-04 and 2004-05. The assessee did not go in appeal in respect of disallowance of the provision amount as the same provisions were required only in accordance with the West Bengal State Cooperative Act. However in computation the assessee added back the provision for FBT, depreciation on WIP but did not add back other disallowances. The AO initiated the penalty under section 271(1)(c) for concealment of income and for furnishing of inaccurate particulars of income. The assessee went in appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee and sustained the penalty in respect of addition made due to provision for sundry debtors and provision for suspense.
Contention of the Assessee
Ld. AR of the assessee contented that the provision has been made by the assessee, as per the suggestion of the government auditor, vide their report dated 20.06.2008. The assessee is not aware of and while making the computation, the profit has not to be taken as per the audited profit & loss a/c. and therefore, a bona fide mistake has been committed by the assessee but that bona fide mistake does not envisage the penalty as there was proper disclosure about the particulars of the income as well as particulars of each of the provisions made by the assessee. There was no intention of the assessee to conceal the particulars of its income or furnishing inaccurate particulars of income. The AO has applied the provision of Explanation 4(a) to section 271(1)(c). This explanation is applicable when the amount of the income has the effect of reducing the loss declared in the return or converting the loss into income. In the case of the assessee, neither net loss declared in the return was reduced nor the loss has been converted into the income.
Contention of Revenue
The ld. DR, on the other hand, relied on the order of the tax authorities below.
Held by Tribunal
It was held by the Tribunal that this is an undisputed fact that the provisions, which have been disallowed by the AO, are not deductible, while computing the total income, as per the provisions of Income-Tax Act. These provisions might have been made on the suggestion of government auditors but will not become an allowable expenditure under the Income-Tax Act. If those provisions were allowable, the assessee would have come in appeal before the appellate authorities. Claiming those provisions as deduction under the Income Tax Act, it shall prove that the assessee has concealed the particulars of income or furnished the inaccurate particulars of income. The assessee in this case has claimed the deduction of the provisions, which, he was fully aware of, that the provisions are not deductible under the law. It is not the plea of the assessee that the assessee has committed a bona fide mistake by claiming the said deduction. Thus, in our opinion, the assessee has complied with the basic condition that the assessee has concealed the particulars of income or furnished the inaccurate particulars of income.
Now, the question arises how the penalty should be computed. In the instant case, A.O. has levied the penalty by applying Explanation 4(a). The amount of tax sought to be evaded has been defined under Explanation 4(a) “In any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income;”
In this case, the assessee has returned the income at Rs.1,32,45,460/- and the income has been assessed at Rs.1,32,45,460/-, even though there has been addition made by the AO in respect of provision for sundry debtors and provision for suspense, for which the penalty has been sustained by the CIT(A) but the addition so made does not affect either reducing the loss declared in the return or converting the loss declared in the return into income. The assessee has not declared loss in the return. Therefore, in our opinion, explanation 4(a) on the basis of which, the penalty has been imposed and confirmed by the CIT(A), will not apply. The clause (b) and (c) of explanation 4, even though defines the amount of tax sought to be evaded but they are also not applicable in the case of the assessee, as tax on the total income assessed remains the same. In our opinion, explanation 4(a) is not applicable as the addition made does not affect the loss declared in the return or converts the loss into income. As a result order of the CIT(A) was quashed and the penalty imposed by the AO under section 271(1)(c) was deleted. The appeal filed by the assessee allowed.