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Income Tax Appellate Tribunal, DELHI BENCHES : B : NEW DELHI
Before: SHRI R.S. SYAL & MS SUCHITRA KAMBLE
Date of Hearing : 13.09.2017 Date of Pronouncement : 15.09.2017 ORDER PER R.S. SYAL, VP: This appeal by the Revenue arises out of the order passed by the CIT(A) on 01.05.2013 deleting the penalty imposed by the Assessing Officer u/s 271(1)(c) of the Act in relation to the Assessment year 2003-04.
Succinctly, the facts of the first component of penalty are that the assessee reduced Provision for doubtful debts amounting to Rs.53,63,688/- and Provision for gratuity amounting to Rs.3,17,087/- in the computation of `Book profits’ u/s 115JB of the Act. The Assessing Officer did not accept the assessee’s claim and accordingly enhanced the amount of book profits. Thereafter, penalty was imposed, which came to be deleted in the first appeal. The Revenue is aggrieved against the deletion of penalty.
Having heard both the sides and perused the relevant material on record, it is observed that in so far as the `Provision for gratuity’ is concerned, the ld. CIT(A) allowed the assessee’s claim in quantum proceedings which came to be upheld by the Tribunal. Under these circumstances, there can be no question of penalty on an addition which has been deleted in the quantum proceedings.
As regards the `Provision for doubtful debts’, it is seen that the Hon'ble Supreme Court in CIT vs. HCL Comnet Systems and Services Ltd. (2008) 305 ITR 409 (SC), has held that the provision for doubtful debts cannot be added back under clause (c) of the Explanation to section 115JA. The Finance (No.2) Act, 2009, with retrospective effect from 01.04.2001, inserted clause (i) to the Explanation to section 115JB thereby setting to naught the ratio laid down in HCL Comnet Systems and Services Ltd. (supra). The assessment year under consideration is 2003-04 and the retrun of income was filed on 2.12.2003. Though the insertion of clause (i) to the Explanation to section 115JB has been made retrospectively applicable, but, the amendment came to be introduced by the Finance (No.2) Act, 2009 i.e., much after the filing of the return by the assessee in 2003. The assessee could not have anticipated the amendment and given effect to the same at the time of filing its return of income. Under these circumstances, there can be no question of penalty u/s 271(1)(c) on the amount of `Provision for doubtful debts’ added back by the Assessing Officer, which claim of the assessee was backed by some judicial precedents in its favour at the relevant time. 3 We, therefore, approve the view taken by the ld. CIT(A) in deleting the penalty on the amount of `Provision for doubtful debts’ as well.
The next component of penalty is disallowance of joint venture expenses. The assessee debited a sum of Rs.51,64,340/- as joint venture expenses under the head `Administrative and selling expenses’ by giving a note to the effect that it entered into joint venture by the name of SET Discovery (P) Ltd. The Assessing Officer disallowed 25% of expenses on ad hoc basis by treating the same as a capital expenditure and imposed penalty on this disallowance, which was deleted in the first appeal.
Having heard both the sides and perused the relevant material on record, it is seen that the Assessing Officer made disallowance by treating 25% of the total expenses as capital expenditure on ad hoc basis.
There is no justification for treating 25% of the amount as capital expenditure. It could have been actually more or less also. Thus, it is evident that it is only a matter of estimation by the Assessing Officer treating a particular percentage out of total expenses as capital, which the assessee claimed as revenue. In the given circumstances, we are satisfied that the ld. CIT(A) rightly appreciated the facts and deleted the penalty on such addition.
In the result, the appeal is dismissed.
The order pronounced in the open court on 15.09.2017.