M/S. SOFTRACK VENTURE INVESTMENT LTD.,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-8(2),, AHMEDABAD

The assessee has raised the following grounds of appeal: 1. Ld.CIT(A)-8 has erred in facts and in law in treating the transaction of bad debts as not proved merely on the basis of non availability of address of parties to agreement and not being executed before Notary. 2. Ld.CIT(A)-8 has erred in facts and in law in adjudicating factually that appellant has disclosed all material facts before Ld.A.O. 3. Ld.CIT(A)-8 has erred in facts and in law that appellant has filed its return of income since 2002-2003 and said returns and characterization of transaction as bad debts is never disputed and therefore appellant is under bonafide belief to correct characterization of transaction and in the facts and circumstances penalty ought to have been deleted. 4. Ld.CIT(A)-8 has erred in facts and in law misjudging and irrelevantly throwing burden upon newly appointed director suddenly on death of son who is actively managing company and upon authorized representative. 3. At the outset we note that there was a delay in filing the appeal by the assessee for 95 days. The assessee has filed an affidavit explaining the reason of the delay which is available on record. In the affidavit it was explained that the main Director namely Shri Dhirajlal P Gaglani was passed away on the 23/02/2011 thereafter his son Shri Sunil Dhirajlal Gaglani was promoted as Director in the assessee-company. As such the son was not aware of the affairs of the company and thus delay has occurred.

Besides the above, it was also submitted that the director was not keeping well and therefore he could not file the appeal in time. The assessee in support of its contention has filed the medical report/prescription which are available on record. In view of the above, the Ld. AR requested to condone the delay in filing the appeal.

On the other hand, the Ld. DR considering the reason of the delay did not raise any objection if the delay is condoned.

After hearing both the parties and perused the materials available on record. We note that there was sufficient cause which prevented assessee to file the appeal within the time as discussed above. Accordingly, in the interest of justice and fair play, we condone the delay and proceed to adjudicate the issue on merit.

The only issue raised by the assessee is that the Ld. CIT(A) erred in confirming the penalty levied by the AO for Rs. 1,42,50,310/- on account of furnishing inaccurate particulars of income under the provisions of section 271(1)(c) of the Act.

The facts in brief are that the assessee filed the return of income declaring loss of Rs. 4,29,51,000 only. The assessee in the return of income has claimed bad debt amounting to Rs. 4,29,00,000/- which was disallowed in the assessment framed u/s 143(3) of the Act dated 26/02/2014. The AO was of the view that the assessee has furnished inaccurate particulars of income by claiming bad debts which were not eligible for deduction under the provision of section 36(1)(vii) r.w.s. 37(2) of the Act. Thus, the AO levied the penalty of Rs. 1,42,50,310/- being 100% of the tax sought to be evaded under the charge of furnishing in accurate particulars of income.

Aggrieved assessee preferred an appeal to the Ld. CIT(A), who confirmed the penalty levied by the AO by observing as under: I have carefully considered the penalty order along with the assessment order and the submission filed by the AR. I have perused the assessment records also. It is evident from the assessment order and penalty order quoted above that the assessee could not produce any supporting evidence in respect of his claim of bad debt. The very identity and genuineness of the said transacting party i.e. Ideon Technology Pvt. Ltd. and transaction made with this party could not be proved at all. In his submission filed on 29.12.2015 in his rejoinder the AR has stated, "Company sought advice of other Chartered Accountant and it was felt that though there is a transaction of purchase of business of M/s. Ideon Technology Pvt. Ltd. but said company was engaged in software development and there is no software development nor is there revenue for such software............ ...........In view of such situation and has no share holders of M/s. Ideon Technology Pvt. Ltd. has claimed shares from assesses company as assessee company might be awaiting development of software hence there appears to be no substratum of M/s. Ideon Technology Pvt. Ltd. Hence, assessee company felt that though there may be MOU -with M/s. Ideon Technology Pvt. Ltd. however, its effect may have to be given upon successful development ofsoft\vare as it has failed hence entire transaction of equity shares of assessee company to the tune of Rs.45 Cr. And consequential accounting entries are passed prematurely and existing Director was unable to give any explanations for such entries. "

Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.

The Ld. AR before us contended that the assessee has not furnished inaccurate particulars of income by claiming the bad debt. As such the bad debt were duly disclosed in the return of income. Thus, at the most, the claim of the assessee can be a wrong claim which cannot be equated with furnishing inaccurate particulars of income.

On the other hand the Ld. DR vehemently supported the order of authorities below.

We have heard the rival contention of both the parties and perused the materials available on record. The assessee has claimed the bad debt amounting to Rs. 4,29,00,000/- in the income tax return which were disallowed by the authorities below. Therefore, it was concluded that the assessee has furnished inaccurate particulars of income by way of claiming the bad debts which were not eligible for deduction under the provision of section 36(1)(vii) r.w.s. 36(2) of the Act. Before we adjudicate the issue whether the assessee has furnished inaccurate particulars of income, we note that even after making the disallowance of bad debt there is a loss to the assessee amounting to Rs.51,000/- only. As such there was no demand of tax raised upon the assessee in his assessment framed u/s 143(3) of the Act being a return having loss. At the time of hearing, it was also pointed out that the assessee has never claimed set off impugned loss in any of the later years. It was for the reason that the assessee was incurring losses all the years. This fact was not controverted by the Ld. DR appearing on behalf of the Revenue at the time of hearing.

In the result, the appeal filed by the assessee is allowed.