Case Law Details

Case Name : Dy. CIT Vs M/s. Nepa Limited (ITAT Indore)
Appeal Number : ITA No. 683/Ind/2013
Date of Judgement/Order : 13/10/2014
Related Assessment Year : 2003-04
Courts : All ITAT (7336) ITAT Indore (67)

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It is not a case where the assessee has voluntarily withdrawn the claim. The claim has been withdrawn once it has been brought to the knowledge of the assessee by the Assessing Officer.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

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  1. dr.g,balakrishnan says:

    even if revenue moves in SC against HC judgement then know the position of interpretation of laws.

    CAs are generally not allowed in the matter of interpretation of laws why that way SC rendered judgement NTT where it quashed the NTT Act itself is known fact there was big furor and indignation in CA circles;

    Revenue panel lawyers may have opinion against this judgement, but all laws are based on natural justice only so there is a hearing procedure in courts and the petitioner can move to higher forum of judiciary why ? doctrine of natural justice only prevails, that way we examine legislative intent too, after all law makers are not sovereign like a citizen Sirs!


  2. dr.g,balakrishnan says:

    tax guru is not guru in laws as laws are always evolving.

    if there is any doubt in the ITAT decision let it move to MP High court then see what the revenue gets !

  3. dr.g,balakrishnan says:

    judgement is right from the fact prosecutor cannot be the judge in his own matter.
    Mens rea need to be proved is mandatory and the onus is on prosecution.

    here AO passed penalty u/s 271(1)(c) which action by AO is not right at all.

  4. CA M R JETHWANI says:

    This was not a mistake ? It must be a deliberate mistake or even a fraud. The assessee must have also claimed write off of bad debts in addition to provision for bad debts. So how come it is taken as unintentional.
    Provision for Income Tax must have been short and profit inflated of a listed PSB.
    PSB’s have huge resources and engage leading Tax Consultants. Penalty would have been more appropriate.

  5. adv. Dr.G.Balakrishnan says:

    In fact IT Act is a civil law and cetsinly not criminal law; if criminal law naturally matter goes to magistrates as the first forum, AO is just some kind of police man that is all.

    Police man cannot convict one without proving mens rea – guilty mind element on the accused.

    conviction isonly duty of the court and any AO that need to be noted.

    that means policeman prosecution has the onus before appropriate criminal court unlike in civil issues like tax payment, as the term ‘concealment’ is a criminal accusation on assessee..

    AOs need to be very careful not to overstep, if they do possible damages might befall on him individually if guilty mind is not proved without any shadow of doubt please is my opinion

  6. adv. Dr.G.Balakrishnan says:

    It is a settled crime law..whowever prosecutes the onus lies on the per prosecutor certainly not on accused/prpsecuted. So Guj judgement reliance by ITAT, Indore is right, if Delhi HC is contradictory then Gujarat HC judgement is correct per criminal jurisprudence.

    Penalty is on mens rea base and always prosecutor need to prove Mens Rea even Rajasthan HC held and was confirmed by hon SC.

    while prosecuting and levying penalty before mens rea is proved by prosection is Null and void and the prosection would be euther admonished or fined by the hon court.

    delhi HC facts of matter need to examined before interpreting is my view1

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