YUM! RESTAURANTS MARKETING PVT. LTD.,HARYANA vs. ITO, WARD- 27(4), NEW DELHI

As per grounds of appeal, the assessee has challenged the imposition of penalty of Rs.4,31,922/- arising out of quantum additions of Rs.13,97,806/- on account of provision for doubtful debts not added back in the returned income.

3. The Assessing Officer in the scrutiny assessment found that the assessee had only created a provision for doubtful debts in the P & L account which cannot be equated with actual write off of bad debt envisaged under Section 36(1)(vii) r.w. Section 36(2) of the Act and thus assessee has wrongly claimed bad debt provision which is a mere contingent liability. The Assessing Officer alleged that assessee has furnished inaccurate particulars of income to the extent of under reporting of income to the extent of such provision. The Assessing Officer accordingly imposed penalty of Rs.4,31,922/- being 100% of the tax sought to be evaded by such untrue reporting of taxable income.

We have carefully considered the rival submissions. The assessee has defended its position on the plea that full particulars relating to income and expenditure were placed on record and there is no suppression of any particulars/details per se.

Contextually, we notice the observations of Hon’ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 (SC) wherein it was observed that the argument of the Revenue that submitting an incorrect claim for expenditure would amount to giving inaccurate particulars of income is not correct. By no stretch of imagination can making the incorrect claim in law tantamount to furnishing of inaccurate particulars of income. A mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars of income regarding the income of the assessee. If the contention of the Revenue is accepted then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c), i.e., clearly not the intendment of the legislature.

Noticeably, the assessee has filed a return of loss of Rs.1,34,57,646/- in the current year similar losses have been claimed in the earlier years. Thus, in the factual matrix it appears to be a bona fide and inadvertent error where assessee has failed to include the provision for bad debts in its total income. In the instant case, where the Assessee has not derived any tax advantage owing to huge losses, such mistake can only be described as human error. The Hon’ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. vs. CIT reported in (2012) 348 ITR 306 (SC) held in similar circumstances that assessee cannot be treated as guilty of either furnishing of inaccurate particulars of income or attempting to conceal its income.

In the light of the discussion above, we are of the view that imposition of penalty on the assessee is not justified. We thus reverse the action of the lower authorities and direct the Assessing Officer to delete the penalty.

In the result, the appeal of the assessee is allowed.