By TIOL News Service

NEW DELHI, JULY 23, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether non-prosecution of disallowances/additions by the taxpayer in appeal, should not be used against him as a ground for invoking penal proceedings. YES IS THE ANSWER.

Facts of the case:

The assessee company had filed its return declaring loss of Rs. 8.61 crores, whereas the assessment was completed u/s 143(3) at a loss of Rs. 4.71 crores. In addition, penalty proceedings were also initiated separately u/s 271(1)(c) on reduction of returned loss and various disallowances on account of (i) stock written off; (ii) shares written off; (iii) royalty payment; (iv) depreciation; (v) provision for bad debts; (vi) legal consultancy fees fwere taken into account for levy of penalty. However, in his penalty order, though the AO had considered the additions/disallowances but nowhere had he mentioned whether the assessee had filed inaccurate particulars or had concealed its particulars of income. Even in the assessment order, the AO made a passing remark "Penalty u/s 271(1)(c) r.w. Explanation 1 thereto were initiated separately in respect of disallowances to extent returned income had not been substantiated".

Tribunal held that,

++ as far as write off of inventory/stock is concerned, the extract of stock details in the audited statement of accounts specifically pointed out that the discrepancies noticed on verification between the physical stock and books records have been properly dealt with in the books of account. The company has written off stocks amounting to Rs. 2.82 crores which is considered unusable and not realisable by the management and thus destroyed during the year. The auditors have further remarked "unserviceable or damaged stores, raw materials or finished goods are determined and provision for the loss wherever necessary, has been made in the accounts". In so far as other write off/disallowances are concerned, the only reason given for levy of penalty is that the same has been confirmed by the FAA and the assessee did not pursue the matter before the Tribunal. However, this cannot be a reason for levy of penalty because if the stand taken by the Revenue is accepted, then there is no need for having separate penal proceedings in the Income tax Act;

++ it is found that complete disclosure about the write off of stock and other items have been made in the audited financial statement of accounts. Nothing was concealed from the Revenue. Though the AO has drawn support from Explanation 1 to section 271(1)(c), but in the penalty order, the AO has not relied upon the same nor has he given any reference to Explanation 1 to section 271(1)(c) while levying penalty. Therefore, since the assessee had fully disclosed all material facts in its audited financial statement of account filed with the return of income, the AO is directed to delete the penalty so levied.

(See 2018-TIOL-1115-ITAT-DEL)