ACIT, CC-21, MUMBAI vs. M/S MEGA BOLLYWOOD P LTD., MUMBAI

The assessing officer levied a penalty under section 271(1)(c) of the Act on the following additions made by him Disallowance of bad debts claim - Rs. 57,83,411.00 Addition of income from Doordarshan - Rs. 10,000.00 Difference in set off of brought forward losses - Rs.4,17,44,976.00 The assessing officer levied a penalty on the above said disallowances computed at 100% of tax sought to be evaded, which worked out to Rs.1,61,54,896/-.

The first addition relates to disallowance of “Advances” written off by the assessee as bad debts. The assessing officer disallowed a sum of Rs. 57. 83 lakhs out of the advances written off by the assessee, on the reasoning that the the assessee did not furnish any documentary evidence to show that they were given for business purposes and further the assessee could not show that these amounts were offered as income in any of the earlier years. The learned CIT(A) noticed that the disallowance has been made by the AO only on the reasoning that the assessee could not produce supporting evidences to show that these advances have been given in the course of carrying on of business. Hence the Ld CIT(A) took the view that the disallowance so made, per se, would not lead to concealment of income unless the claim is bogus or false. Accordingly the Ld CIT(A) took the view that there is difference of opinion between the assessee and the AO about the allowability of claim, but there was no doubt about the genuineness of transactions.

With regard to the difference of Rs. 10,000/- in the income receivable from M/s Doordarshan, the learned CIT(A) noticed that the same represents a reconciliation difference only.

With regard to the claim of set of of brought forward loss, the learned CIT(A) noticed that the assessee had claimed set off of loss as per the particulars available in the past returns of income filed by it, whereas the assessing officer has allowed the set off of loss on the basis of assessment records. The Ld CIT(A) that the assessee has followed a standard practice that is generally followed by all the assessees under the genuine apprehension that if 3 M/s. Mega Bollywood P. Limited such a claim was not made, the AO may deny any possible claim in the future, if the orders were passed by appellate authorities in favour of the assessee.

In view of the above, the Ld CIT(A) deleted the penalty.

The Ld A.R placed strong reliance on the order passed by Ld CIT(A), where as the Ld D.R strongly supported the order passed by the assessing officer.

We heard the parties and perused the record. From the submissions made by Ld A.R and the materials available on record, we notice that the assessing officer has disallowed the claim of “advances written off” only for the reason that the assessee could not submit the evidences. However, the fact that these advances have been carried forward from year to year from past several years has not been denied by the AO. According to the asssessee, these advances have been shown as business advances in the books of account. Since the chances of recovery of these advances have been poor, the assessee has chosen to write off them as bad debts, which in effect represents trading loss only. In case of trading loss, there is no requirement that they should have been offered as income in any of the years. Thus, we agree with the observations of Ld CIT(A) that the disallowance of the advances so written off has been made only on a clear difference of opinion. It is well settled proposition that the penalty u/s 271(1)(c) of the Act shall not lie in respect of debatable issues.

In respect of the addition of Rs.10,000/- relating to the income receivable from Doordarshan, the Ld CIT(A) has pointed that the same is a matter of reconciliation of accounts of the assessee. The Ld A.R submitted that the above said amount has been wrongly accounted for in the accounts of Bharat S Shah Film Business (new). Thus we agree with the observations of the Ld CIT(A) that 4 M/s. Mega Bollywood P. Limited this is a matter of reconciliation and the same was omitted to be account of the assessee due to non-reconciliation of accounts of the assessee.

With regard to the difference in the amount of brought forward losses, we agree with the observations of the ld CIT(A) that the assessee was constrained to claim the losses as per the return of income filed for earlier years, since the assessee could expect relief in respect of additions from the appellate authorities and in that case brought forward losses are required to be set off as per returns of income, if the entire additions were deleted. Hence the claim so made cannot be considered to be a false claim.

From the foregoing discussions, we are of the view that the Ld CIT(A) has rightly taken the view that all the three additions do not warrant levying of penalty u/s 271(1)(c) of the Act. Accordingly, we affirm the order passed by Ld CIT(A).

In the result, the appeal filed by the revenue is dismissed. Order has been pronounced in the Court on 3.8.2016