INCOME TAX ACT, 1961

Section 271(1)(c)

Penalty under section 271(1)(c) - Concealment or furnishing of inaccurate particulars - Leviability - Making of claim not acceptable to AO

Assessee debited Rs. 62 lakhs under the head 'selling and distribution expenses' and claimed it as bad debt in books of account thus claiming it as a deduction under section 36(1)(vii). AO noticed that amount was paid to M/s. JCT Ltd. as compensation for the supply of inferior quality of goods. Thus AO held that amount claimed as bad debt was not actually a debt and, therefore, it was not allowable as a deduction under section 36(1)(vii). AO further held that said claim was also not admissible even under section 37(1), with the observation that payment made to M/s. JCT Limited was not wholly and exclusively for business purposes but for extraneous considerations. Accordingly, AO added said amount to assessee's income. Also AO levied penalty under section 271(1)(c) on account of furnishing of inaccurate particulars of income. Assessee challenged penalty levied by AO on the ground of non-mention of particular charge of offence in penalty notice issue of under section 274 read with section 271(1)(c). Held: If assessment order and show cause notice, under section 274 read with section 271(1)(c) both issued on the same date were read in conjunction, a view could reasonably be taken that notwithstanding defective notice, assessee was fully aware of the reason as to why AO sought to impose penalty. It was quite clear that for breach of the second limb of section 271(1)(c), i.e., for furnishing inaccurate particulars of income. Even though in the assessment order it was clearly mentioned that penalty proceedings under section 271(1)(c) had been initiated separately for furnishing inaccurate particulars of income. Therefore, contention urged by assessee was beyond acceptance. However, assessee had duly explained claim made by it under section 36(1)(vii) and merely because assessee's claim was not found admissible even under section 37(1), the same by itself would not amount to furnishing inaccurate particualrs regarding income of assessee otherwise, in case of every return where claim made is not accepted by AO for any reason, assessee would invite penalty under section 271(1)(c) which is clearly not the intendment of Legislature. Accordingly, penalty levied under section 271(1)(c) could not be sustained.

Followed:CIT v. Mansukh Dyeing & Printing Mills, ITA No. 1133 of 2008, decided on 24-6-2013 asnd CIT v. DCM Ltd. (2013) 359 ITR 101 (Del-HC) : 2013 TaxPub(DT) 2543 (Del-HC), CIT v. Shahabad Co-operative Sugar Mills Ltd., (2010) 322 ITR 73 (P&H-HC) : 2010 TaxPub(DT) 869 (P&H-HC) and CIT v. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC) : 2010 TaxPub(DT) 1683 (SC) .

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2003-04

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