SANTOGEN SILK MILLS LTD,MUMBAI vs. ITO 8(3)(1), MUMBAI

Assessee by : None Revenue by : Shri B.S. Bist (DR) Date of hearing : 02.02.2017 Date of Pronouncement : 01.03.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee u/s 253 of the Income-tax Act (‘the Act’) is directed against the order of Ld. Commissioner of Income-tax (Appeals) [for short ‘the CIT(A)] –18, Mumbai dated 27.02.2014 for Assessment Year (AY) 2006-07. The assessee has raised only one ground of appeal that the authorities below erred in levying/confirming penalty under section 271(1)(c) amounting to Rs. 18,09,327/-

2. Brief facts of the case are that while framing assessment order the Assessing Officer disallowed the claim of bad debts written off of Rs. 53,64,903/- under section 36 (1)(vii) and Rs. 20,000 /-out of Excise Duty penalty under section 37(1) of the Act. We have noticed that initially the claim of bad debts of Rs. 67,88,211/- was disallowed by Assessing Officer while passing assessment order 143 (3) dated 01.12.2008. On appeal before the Tribunal, the issue regarding the disallowance of bad debt was restored to the file of AO vide order dated 31 March 2011. And in remand proceeding the Assessing Officer again disallowed the claim of bad debts of Rs.53,64,903/-. The disallowance of Rs. 20,000/- on account of Excise Duty penalty was made on the basis of Assessment Order passed u/s 143(3) r.ws. 147 of the Act on 30.12.2011. On appeal before Commissioner (Appeals) both the disallowance was upheld. After receipt of order from Commissioner (Appeals) the Assessing Officer initiated penalty proceeding under section 271(1) (c ) of the Act. Notice under section 274 read with section 271(1)(c) was issued on 30th December 2011. No reply was allegedly filed by assessee. However, after giving opportunity of hearing the representative of assessee the Assessing Officer passed the penalty order on 15 March 2013, levying the penalty at the rate of hundred percent on the amount on which tax sought to be evaded. The Assessing Officer worked out a penalty of Rs.18,09,327/-. On appeal before Commissioner (Appeals) the order penalty was upheld. Thus further aggrieved by the order of Commissioner (Appeals) for confirming the order of levy of penalty the assessee has filed present appeal before us.

3. None appeared on behalf of assessee when the case was called for hearing, when, despite waiting for sufficient time nobody appeared; we left no option except to hear the ld Department representative and to proceed with to decide the appeal on the basis of material available on record. The ld DR for the revenue fairly submitted that against the disallowance of bad debts the assessee filed appeal before the Tribunal vide ITA No. 7776/M/2012. The Tribunal has decided the appeal of assessee vide order dated 23rd March 2016 and the issue of bad debt had been restored back to the file of Assessing Officer. The ld DR submitted that the penalty on the disallowance of Rs. 20,000 /- on account of Excise duty may be upheld.

4. We have considered the contention of landed AR for the revenue and perused the material available on record. We have seen that the disallowance of bad debts of Rs. 53,64,903/- have been restored to the file of Assessing Officer by the Coordinate bench of this Tribunal, thus, in those circumstances the penalty order on such disallowance is not sustainable. However, the Assessing Officer is liberty to initiate penalty proceeding afresh in accordance with law. So far as penalty on account of disallowance of Rs. 20,000/- on account of Excise duty penalty is concerned, we noticed that the assessee has made claim which was not sustainable and in law. The amount of Rs.20,000/- was paid by assessee to the Excise Department which was in the nature of penalty and is not allowable expenses as per the explanation1 of section 37 of Income Tax Act. We are of the view that the assessee merely made a wrong claim which is not an allowable one and was ultimately disallowed by AO. It is settled law that every disallowance on account of unsustainable claim or such claim which is found legally unsustainable to the Assessing officer would not automatically attract the penalty. Hence, we delete the penalty on the disallowance of Rs. 20,000/- paid on account of Excise duty penalty.

Order pronounced in the open court on this 1st March, 2017.