While deciding penalty appeal, it is open to the Tribunal to look into the transaction to see as to whether the claim was bona fide or it was bogus and result of falsehood

CIT Vs. Sumangal Overseas Ltd. (Delhi High Court) – The Court held that where no appeal is preferred by the assessee against the quantum order, yet, while deciding the penalty appeal, it is open to the Tribunal to look into the transaction to see as to whether the claim was bona fide or it was bogus and result of falsehood. From that angle, when the Tribunal examined the matter, it found that on the facts of this case when advances given to the suppliers were not written off as irrecoverable, the same was allowable under Section 28 of the Act. A trading loss has a wider connotation than a bad debt. A bad debt may also be a trading loss, but a trading loss need not necessarily be a bad debt. There may be a bad debt which may not fall within the purview of Section 36(1)(vii) of the Act, but may well be regarded as one eligible for deduction incurred in the course of carrying on business will come under that category and will naturally enter into computing the net total income as the real profit chargeable to tax cannot be arrived at without setting off legitimate trading loss.

8. On these facts, it is apparent that the claim was neither mala fide nor false. It was a bona fide claim preferred by the assessee, who had also disclosed all the facts relating to and material to the computation of his income. In these circumstances, the assessee fulfilled both the conditions to be outside the purview of Explanation (1) to Section 271(1)(c) of the Act. The case of the assessee is covered by the judgement of the Supreme Court in the case of CIT Vs. Reliance Petro products (P) Ltd., 322 ITR 158 (SC), where it was held that the assessee must be found to have failed to prove that his explanation is not only bona fide, but all the facts relating to the same and material to the computation of his income were also not disclosed by him. It was further held that the explanation must be preceded by finding as to how and in what manner the assessee had furnished inaccurate particulars of his income.

9. In fact, had the assessee pressed his claim in a proper manner during the assessment proceedings, he might have even succeeded in getting the said deduction allowed. Be as it may, in such a case, the assessee cannot be fastened with penalty also.

In The High Court of Delhi At New Delhi

ITA No. 174 of 211

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