Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH: ‘C’, NEW DELHI
Before: SH. I.C. SUDHIR & SH. O.P. KANT
ORDER Per O.P. KANT, A.M.: These two appeals by the assessee are directed against two separate orders of the Ld. Commissioner of Income-tax (Appeals) [in short “the CIT(A)”] dated 29/05/2014 for assessment year 2003-04 and 2004-05 respectively, wherein the Ld. CIT(A) has confirmed the penalty levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’). Since both the appeals are connected with the same assessee, these appeals were heard together and disposed off by this consolidated order for convenience.
First we take up the appeal in , wherein the grounds of appeal
raised are as under: “1. That on the facts and circumstances of the case and in law, the order passed by the learned Commissioner of Income Tax (Appeals)-XV [‘CIT(A)’] is erroneous and bad in law and the learned CIT(A) has erred in confirming the penalty of Rs. 52,10,054/- levied under Section 271 (l)(c). 2.That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the levy of penalty even when the Assessee had written off the bad debts in its books of accounts and the conditions of Section 36(l)(vii) and Section 36(2) of the Act are fulfilled.
3. That on the facts and circumstances of the case and in law, the CIT(A) has erred in upholding the levy of penalty when it is settled law that bad debts ought to be allowed as a deduction as long as they are written off in the books of accounts.
4. That on the facts and circumstances of the case and in law, the CIT(A) has erred in upholding the levy of penalty when the Assessee has neither concealed the particulars of his income nor has furnished inaccurate particulars of such income.
5. That on the facts and circumstances of the case and in law, the CIT(A) erred in doubting the nature of the debt when it is not in dispute that the assessee has written off the debt in its books of accounts.” The Appellant craves leave to alter, amend and/or withdraw the Grounds of Appeal herein or add any further grounds as may be considered necessary and to submit such statements, documents and paper as may be considered necessary either before or during the appeal hearing.”
The facts in brief of the case are that during the year under consideration, the assessee company was duly registered as a Non- banking Finance Company (NBFC) with the Reserve Bank of India (RBI) in pursuance of section 45(1A) of the RBI Act, 1934. The assessee was engaged in the business of consumer and auto finance. The assessee filed return of income on 11/11/2003 declaring total income of Rs.26,83,22,770/-. The case was selected for scrutiny and assessment under section 143(3) of the Act was completed at total income of Rs.36,56,53,378/- after making various additions including the addition for bad debts written off of Rs. 1,41,77,018/-. The Assessing Officer also levied penalty under section 271(1)(c) of the Act for filing inaccurate particulars of income amounting to Rs.7,64,14,855/- vide order dated 31/07/2013. On appeal, the Ld. CIT(A) sustained the penalty in respect of the disallowance of bad debts written off of Rs.1.41 crores. Aggrieved, the assessee is in appeal before the Tribunal, raising the grounds as reproduced above.
In the grounds raised
, the assessee is aggrieved with the penalty of Rs.52,10,054/-sustained by the Ld. CIT(A) in respect of the disallowance of bad debts written off.
5. At the outset, the Ld. counsel of the assessee submitted before us that in quantum appeal, the Tribunal in has restored the issue to the file of the Assessing Officer for verification of the claim of the assessee in the light of the observation of the Tribunal in assessment year 2001-02, and therefore, penalty does not survive now.
6. The Ld. CIT(DR), on the other hand, relied on the order of the lower authorities, however, could not controvert the fact that issue in quantum appeal has been restored to the file of the Assessing Officer for verification.
7. We have heard the rival submissions and perused the relevant material on record. The Tribunal in ITA No. 4235/Del/2011, while deciding the quantum has held as under:
“28. Ground no. 3: While adjudicating assessee’s appeal for AY: 2001-02, we have restored this issue to the file of AO for verification of assessee’s claim. For the same reasons herein also the issue is restored to the file of AO in terms of our observation on this issue in AY 2001-02.” 8. Further in appeal for assessment year 2001-02, in the Tribunal decided the issue as under:
“17.1 Since the assessee had not furnished the details before the AO, therefore, we restored this matter to the file of Assessing Officer to examine the basic ingredients of section 36(2) whether fulfilled or not. There is no dispute that debt has been written off. Further, we may clarify that AO will not go into the issue whether the debt had become irrecoverable or not in view of the decision of Hon’ble Supreme court in TRF Ltd. (supra). With these observations, the issue is set aside to the file of AO. Ground is allowed for statistical purposes.”
We find that issue in dispute in the quantum appeal has already been restored to the file of the Assessing Officer, the penalty levied by the Assessing Officer and sustained by the Ld. CIT-A cannot survive, and while deciding the issue the Assessing Officer, may take action for initiation of penalty proceeding in accordance with law . Accordingly all the grounds raised
by the assessee in respect of the penalty levied on the issue of bad debts written off are allowed accordingly.
10. In the result, appeal of the assessee is allowed. for AY: 2004-05
11. Now, we take up appeal in ITA No. 4136/Del/2014. The grounds of appeal raised are as under: “1. That on the facts and circumstances of the case and in law, the order passed by the learned Commissioner of Income Tax (Appeals)-XV [‘CIT(A)’] is erroneous and bad in law and the learned CIT(A) has erred in confirming the penalty of Rs. 89,93,427/- levied under Section 271 (l)(c) of the Act.
2. That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the levy of penalty on the reasoning that the additional claim made by the Assessee on account of interest of sticky loans is incorrect qua the conditions of Section 36(l)(vii) of the Act when the conditions of the Section are fulfilled as the same interest has been recognized as income in earlier assessment years by the tax authorities.
3. That on the facts and circumstances of the case and in law, the CIT(A) has erred in upholding the levy of penalty when the Assessee has not furnished inaccurate particulars of such income and has made true and bona fide disclosures.
4. That on facts and circumstances of the case and in law, the learned CIT(A) has failed to appreciate that the principle amount relating such interest was already written off as bad and since the interest amount on such debt was never realized by the assessee and tax authorities had recognized the interest as income in the earlier years, interest amount qualifies as a bad debt within the meaning and understanding of Section 36(I)(vii) of the Act. The Appellant craves leave to alter, amend and/or withdraw the grounds of appeal herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the appeal hearing.”
The facts in brief of the case are that in the assessment proceeding completed under section 143(3) of the Act, the Assessing Officer assessed the total income at Rs.77,42,48,277/- as against the returned income of Rs.40,80,38,790/-. The Assessing Officer also levied penalty under section 271(1)(c) of the Act on 31/07/2013 for furnishing inaccurate particulars of income, amounting to Rs.13,08,77,439/- in respect of various additions/disallowances. On appeal, the Ld. CIT-A sustained the penalty in respect of disallowance of interest on sticky loans. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
The Ld. counsel of the assessee submitted that regarding the additional claim of interest on a sticky loans of Rs. 2.50 crores, the Ld. CIT(A) himself as observed that the assessee made due disclosure in the return of income by a specific self-contained note on the issue and there for it could not be held that the assessee might have concealed particulars of income. He upheld the penalty only on the ground that the claim of the assessee was incorrect in view of the Section 36(1)(vii) of the Act. The Ld. counsel further submitted that claim of the assessee was only an alternative claim, in the event accrued interest income on sticky loans , reduced in the computation of income by the assessee was not accepted. And, therefore, there was no incorrectness in the claim made by the assessee as against held by the Ld. CIT(A). 14. The Ld. CIT(DR), on the other hand, submitted that assessee has made a wrong claim for the deduction which was not allowable under the provisions of the Act and thus the assessee has filed inaccurate particulars of income to that extent and therefore penalty upheld by the Ld. CIT-(A) on the issue in dispute was justified. 15. We have heard the rival submissions and perused the relevant matter of record. The Ld. CIT(A) has upheld the penalty with following findings: “6.5 Regarding the additional claim of interest on sticky loans of Rs.2.50 Crores, I find that the appellant in the earlier assessment years, had not recognized revenue on certain non-performing asset in terms of the Prudential Norms Directions, 1998 of RBI, however the Ld. AO in the assessment of those Assessment years starting from 1998-99, 2000-01 and 2001-02, made addition by recognizing the interest on NPAs as revenue. The said additions are in appeal before the appellate authorities. Subsequently, the appellant, in the current year, wrote off of the principal amount in respect of such loans. Since, the principal amount itself was written off, the appellant filed a claim for treating interest on such principal amount, which was brought to tax in the earlier years as an allowable 'bed debts', as the interest itself was never realized. 6.5.2 On careful consideration, I find that the decision taken by the AO in the earlier year's assessment starting from 1998-99, is itself debatable, keeping in view the RBI guidelines in the issue. Nevertheless, since the appellant has not made entries in its books in respect of the interest income (in terms of Prudential Norms of RBI), it could not have written off the same by holding it as 'bad debt' u/s 36(l)(vii). In case, the appellant’s appeal for not recognizing interest as Income (Income in earlier year) is allowed, corresponding appeal effect will be given by the AO. Under the circumstances, merit of the addition per se is not doubtful. However, it is evident that the appellant has made due disclosure in the return of income by a specific self-contained note on the issue. Therefore, it cannot be held that the appellant may have 'concealed' particulars of income. But since the claim made by the appellant is incorrect qua the conditions entailed in Section 36(l)(vii), evidently the appellant has filed 'inaccurate particulars' to that extent. Under the circumstances, I uphold the action of the Assessing Officer of levying penalty on this ground of addition.”
We find that regarding the issue of claim of Rs. 2, 50, 68, 788 in the computation of income pertaining to bad debts toward accrued interest the Assessing Officer in the assessment order has observed as under: “Further, assessee has claimed an amount of Rs.2,50,68,785/- in the computation of income pertaining to the bad debts towards accrued interest since the principal amount on said assets have itself been written-off during the year ended March 31, 2004. In the reply dated 16.11.2006, assessee has preferred a claim of Rs.5,43,36,079/- pertaining to income reveals for AY 2002-03 (amounting to Rs.3,33,90,090/-) and AY 200-03 (amounting to Rs.2,09,45,989/-) taxed in the assessments for the respective years. The said claim has been made by the assessee, since the principal amount on said assets have itself been written off during the year ended March 31, 2004.”