DCIT 8(1), MUMBAI vs. AQUA LOGISTICS LTD, MUMBAI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that since the bad debt claim was not found to be bogus or non-genuine, and was disallowed only on a technical ground of not being written off in the books, it did not constitute concealment of income or furnishing of inaccurate particulars. Therefore, no penalty was leviable.
What were the facts?
The assessee claimed bad debts of Rs. 85,19,123/- in its computation of total income. The Assessing Officer disallowed this claim because the amount was not written off in the assessee's books of account as required by law.
What were the issues?
Whether a penalty under Section 271(1)(c) can be levied when a bad debt claim is disallowed on a technical ground (not written off in books) but is otherwise genuine and claimed in the computation of income.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI RAJENDRA & SHRI AMIT SHUKLA
आदेश ORDER अिमत शु�ला : �या. स.: PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the revenue against impugned order dated 12.12.2011, passed by Commissioner of Income Tax (Appeals)-7, Mumbai [CIT(A)] in relation to the penalty proceedings under section 271(1)(c) for the assessment year 2008-09, vide which following grounds have been raised:- 1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty of Rs. 28,99,048/- imposed under section 271(1)(c) of the I.T. Act. 2. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty imposed under section 271(1)(c) of the I.T. Act in respect of Bad Debts of Rs. 85,19,123/- which the assessee had directly claimed in the computation of the total income without
ए�वा लॉिजि�ट�स �ल�मटेड 2 M/s Aqua Logistics Ltd ITA 1366/M/2012 fulfilling the conditions as lid down in Section 36(1)(vii) of the Act. 3. “One of the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty imposed under section 271(1)(c) of the I.T. Act in respect of Bad Debts of Rs. 85,19,123/- without appreciating that the assessee had failed to establish that the said amount of Rs. 85,19,123/- claimed to be bad debts is incidental to its business and has arising from the business carried on by it”.
At the time of hearing, none appeared on behalf of the assessee despite categorical noting by the authorized representative of the assessee on the earlier date of hearing, nor any adjournment application have been filed today. Accordingly, we are deciding the appeal on merits after hearing the arguments of Ld. DR.
The subject matter of levy of penalty is disallowance of claim of bad debts of Rs. 85,19,123/-. In the quantum proceedings, the AO noted that in the statement of income the assessee has claimed a sum of Rs. 85,19,123/- as bad debts, however, the said amount was not written off in the books of account as required under the Act. In response to the show cause notice, assessee gave following explanation / justification:- “Details of bad debts and advances written off. As per statement of bad debts & advances written off the items 1, 4, 5, 6, 7 and 9 are amounts due from staff who have left the organization and the amount could not be recovered from them and consequently claimed as expenditure in the computation of total income. Items 2 is revenue expenditure incurred for promotion of business in Canada and nothing materialized on the same. Consequently the same has been claimed as expenditure in the computation of total income Copy of Agreement of Aqua Logistics North America Inc is enclosed herewith. Insurance claim receivable for damaged goods was not allowed by the insurance company and treated as irrecoverable in the statement of total income.” “Details of Bad Debts & Advances Written Off:
ए�वा लॉिजि�ट�स �ल�मटेड 3 M/s Aqua Logistics Ltd ITA 1366/M/2012 (Rs.) 1. Ambesh Mehna 4,378.00 2. Aqua –Canada (Investment0 67,18,862.14 3. Aqua –Global Scm Pvt Ltd 550.00 4. Ashok Lavande 63,772.63 5. Ashok Patwa 4,68,329.00 6. Ashok S Battappady 8,000.00 7. Guneet Singh Malik 8,994.00 8. Insurance Claim Receivable 4,04,291.00 9. Rakesh Kumar Singh 8,41,846.23 85,19,123.00 ============ However, the Ld. AO held that bad debt can only allowed if it has been written off as irrecoverable in the books of account of the assessee in the previous year in which claim for deduction is made. Since the assessee has not written off amount in the books, therefore, mere claim in the statement of income of bad debts cannot be allowed. The said finding of the AO has attained finality, as no appeal was filed by the assessee on this issue.
In the penalty proceedings, the assessee submitted that all the conditions under section 36(1)(vii) stands fulfilled, that is, the amount was in the nature of debt which had became bad in the previous year, which was written off during the year. Though the assessee by mistake did not write it off in the books of account, but, it had duly claimed as a bad debt in the computation of income for the purpose of income-tax and claimed it as deduction. AO has rejected the said explanation only on technical ground that, the bad debts written off should have been charged to the profit & loss account and not in the return of income. Accordingly he levied the penalty for an amount of Rs. 28,99,048/-.
Before the CIT(A), the assessee submitted that, it is neither a case for any concealment of income nor furnishing of any inaccurate particulars. The assessee has made the claim of bad debts directly in the computation, rather than deducting it in the ए�वा लॉिजि�ट�स �ल�मटेड 4 M/s Aqua Logistics Ltd ITA 1366/M/2012 profit and loss account. The explanation of the assessee was rejected only for the reason that such a write off should have been made in the books of account which the assessee had explained could not be done due to bona fide mistake. Otherwise such a claim has not been found to be bogus or non-genuine. The Ld. CIT(A), deleted the penalty after elaborate discussion and relying upon various case laws.
After considering the submission made by the DR and on perusal of the finding given in the impugned order, we find that it is not the case of the revenue that the bad debt claimed by the assessee was not genuine or was bogus or was not in the nature of debt in the earlier year or this year. The same has been disallowed on the ground that same has not been written off in the books of account, albeit it has been claimed in the statement of income filed along with the return of income. The claim otherwise is legally and factually maintainable. If for any technical reason the claim has been disallowed then that itself does not lead to inference that assessee has furnished any inaccurate particulars of income. There is no concealment of income also while claiming such deduction in the return of income. Accordingly, we do not find any reason to deviate from the conclusion of the CIT(A) that no penalty is leviable on such a disallowance. Accordingly, the order of the CIT(A) is affirmed and grounds raised by the revenue stands dismissed.
Resultantly, appeal of the revenue stands dismissed. Order pronounced in the open court on 4th March, 2016.
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