A,C.I.T. CIR.- 3, NAGPUR vs. M/S INDOWORTH INDIA LTD, NAGPUR

This appeal by the Revenue against the order dated 14-07-2016 passed by the Commissioner of Income Tax (Appeals)-2, Nagpur [‘CIT(A)’] for assessment year 2010-11.

3. We note that the AO recorded issuance of penalty notice u/s. 271(1)(c) of the Act vide its order dated 12-03-2013 passed u/s. 143(3) of the Act. In pursuance of the same, the AO initiated penalty proceedings by issuing a notice u/s. 274 r.w.s. 271(1)(c) of the Act. The AO imposed penalty under the charge of furnishing inaccurate particulars of income by observing that the assessee made provision in its books of accounts without any basis and for claiming the same as expenses, further, for claiming unabsorbed depreciation and for not proving commission expenses. It is noted the AO in the assessment proceedings the provision made was rejected as it is the provision made is contingent liability, claim of unabsorbed depreciation held as not allowable and disallowed commission expenses for non-submission of evidences.

4. We find the Act for making wrong claims and no reference or whatsoever made in the assessment order nor in the penalty order that the assessee furnished inaccurate particulars of income. The CIT(A) by placing reliance on the decision of Hon’ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. reported in 322 ITR 158 (SC), held penalty imposed u/s. 171(1)(c) of the Act for not furnishing inaccurate particulars of income is not maintainable on the ground that the admission or rejection of a claim is a subjective exercise and does not amount to furnishing of inaccurate particulars of income. Admittedly, the AO made additions on account of rejection of provision, denial of set off of brought forward unabsorbed depreciation and disallowance of commission expenses. The relevant claims were made before the AO in the return of income and the AO proceeded to initiate penalty proceedings only on the ground that the estimated provision of books of accounts is not crystallized, non-availability of brought forward unabsorbed depreciation and disallowance of commission expenses. We find when the facts and details in support of the above said claims are disclosed in the return of income and only finding the said claims are not allowable does not amount to furnishing of inaccurate particulars of income. We note that there was no deliberate attempt by the assessee in furnishing any inaccurate particulars of income thereof, does not make the assessee guilty of any charge resulting in imposition of penalty u/s. 271(1)(c) of the Act. We find making incorrect claims only by inadvertent mistake, bonafide error without any intention to furnishing inaccurate particulars of income. A mere disallowance on incorrect claim does not amount to furnishing inaccurate particulars of income, therefore, the assessee is not liable to be charged penalty u/s. 271(1)(c) of the Act. Therefore, following the decision of Hon’ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. (supra) we hold that where complete disclosure of facts and claims were made, was not found acceptable to Revenue, which by itself would not attract the provision u/s. 271(1)(c) of the Act under the charge of furnishing inaccurate particulars of income, no penalty could be imposed. In the present case, admittedly, the assessee disclosed all the details. The AO disallowed the same. When all the details are on the record no penalty can be imposed for making incorrect claim, therefore, we do not find any infirmity in the order of CIT(A) and it is justified. Thus, ground Nos. 1 to 3 raised by the Revenue are dismissed.

Order pronounced in the open court on 17th November, 2022.