THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR INCOME TAX TRIBUNAL APPEAL No.277 of 2011 November 15, 2011 Between: The Commissioner of Income Tax-IV, Hyderabad ... Appellant And M/s.P.M.Telelinks Ltd., Secunderabad ...Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR INCOME TAX TRIBUNAL APPEAL No.277 of 2011 JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao) This appeal under Section 260A of the Income Tax Act, 1961 (the Act), is against the order dated 29.6.2007 of the Income Tax Appellate Tribunal, Hyderabad Bench-B in ITA No.7/H/2007. The respondent (assessee) is engaged in the business of manufacturing and marketing steel products like CRCA coils, MS tubes, GI pipes etc. For the assessment year 2003-04 the assessee filed return of income declaring a loss of Rs.27,26,17,484/-. The return was taken up for scrutiny under Section 143(1) of the Act. Having noticed that the assessee claimed 100% depreciation to the tune of Rs.14,31,195/- on “work rolls” and made a provision for bad and doubtful debts to the tune of Rs.12,84,12,700/-, the assessing officer issued statutory notice. After obtaining explanation, the assessing officer added an amount of Rs.11,50,413/- towards 25% depreciation, treating the work rolls as plant and machinery and also added the amount of bad debts and recomputed the income vide assessment order dated 30.11.2005. In related penalty proceedings under Section 271(1)(c) of the Act, the assessing officer vide order dated 31.5.2006 levied penalty of Rs.4,76,14,442/-. Aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) who, by order dated 29.11.2006, confirmed the penalty. In its appeal before the Tribunal, the assessee was successful. The Senior Standing Counsel for Income Tax would submit that the claim of bad debts and excess depreciation would amount to concealment and therefore penalty is exigible under Section 271(1)(c) of the Act. He would contend that the Tribunal was in error in ignoring the fact that the assessee did not furnish accurate particulars of income and claimed excess deductions which itself would amount to concealment. The assessing officer noticed that in the profit & loss account attached to the return of income, an amount of Rs.12,84,12,700/- was claimed as provision for bad and doubtful debts but corresponding addition in the computation income was not made. As per the Explanation to Section 36(1)(vii) of the Act, any bad debt written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the account of the assessee. In view of this, the said amount was added back to the income. Before the appellate authority, the assessee contended that it was an inadvertent mistake. This submission, however, did not find favour with the Commissioner. Even with regard to the claim of 100% depreciation on the work rolls, the assessee’s contention was that the work rolls were in the nature of consumables and were not assets; that the amount incurred thereon was revenue expenditure and because of this difference of opinion, it claimed 100% depreciation and it had no intention to conceal the income. This contention also did not find favour with the Commissioner. The fact, however, remains that the assessee without further dispute accepted the assessment order and went in appeal only against the penalty order. The Tribunal was therefore concerned with the question whether the assessee had concealed part of its income or furnished inaccurate particulars. Relying on the decision of Delhi High Court in Commissioner of Income Tax v International Audiovisual Company[1], the Tribunal recorded a finding that there was nothing on record to suggest that the assessee had concealed any part of its income or furnished inaccurate particulars of income. Merely because the assessing officer did not agree with the assessee with regard to the rate of depreciation, it cannot be said that there was concealment of income or furnishing of inaccurate particulars of income and, therefore, there cannot be levy of any penalty under Section 271(1)(c) of the Act in respect of the claim for depreciation of work rolls. Even with regard to bad debts, the Tribunal came to the conclusion that by mere non-adding back of the provision of bad debts in the total income, it cannot be said that the assessee had concealed any part of income or furnished inaccurate particulars. The question therefore is whether the Tribunal applied the correct principle of law. Section 271 of the Act empowers the assessing officer or the Commissioner (Appeals) to direct that the assessee shall pay penalty if the authority is satisfied inter alia that the assessee concealed the particulars of his income or furnished inaccurate particulars of such income (Section 271(1)(c) of the Act). Explanation (1) thereto, however, makes it clear that if the assessee offers explanation and the amount added as disallowed has been claimed bona fide there would not be any necessity to levy penalty. In Commissioner of Income Tax v Eli Lilly and Company (India) Ltd[2], the Supreme Court inter alia considered the scope of Section 271-C read with Section 273-B of the Act and held as follows. Section 271-C inter alia states that if any person fails to deduct the whole or any part of the tax as required by the provisions of Chapter XVII-B then such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct. In these cases we are concerned with Section 271-C(1)(a). Thus Section 271-C(1) (a) makes it clear that the penalty leviable shall be equal to the amount of tax which such person failed to deduct. We cannot hold this provision to be mandatory or compensatory or automatic because under Section 273-B Parliament has enacted that penalty shall not be imposed in cases falling thereunder. Section 271-C falls in the category of such cases. … … Section 273-B states that notwithstanding anything contained in Section 271-C, no penalty shall be imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened only on the person who does not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and sufficient reason. On the same analogy if the conditions in Explanation (1) to Section 271(1)(c) of the Act are satisfied by the assessee that the deductions claimed were bona fide, the exercise of power to levy penalty under Section 271(1)(c) of the Act cannot be held valid. In Union of India v Dharmendra Textile Processors[3] and Commissioner of Income Tax v Atul Mohan Bindal[4], the Supreme Court held that penalty provision cannot be invoked for making an inaccurate claim in law nor does the same amount to furnishing inaccurate particulars of income. The same view was reiterated in Commissioner of Income Tax v Reliance Petroproducts[5] wherein it was held as follows. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as: not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript. We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. In this case the Tribunal found that the claim of 100% depreciation of work rolls and the claim of bad debts and not adding back the provision of bad debts to the total income do not amount to concealment of income or furnishing inaccurate particulars of income. This finding was based on the examination of the factual background and no question of law is involved. The appeal is therefore dismissed. No costs. ________________ (V.V.S. RAO, J) _____________________ (SANJAY KUMAR, J) November 15, 2011 YS [1] (2006) 280 ITR 570 [2] (2009) 15 SCC 1 [3] (2008) 13 SCC 369 : (2008) 306 ITR 277 (SC) [4] (2009) 9 SCC 589 : (2009) 317 ITR 1 (SC) [5] (2010) 11 SCC 762 : (2010) 322 ITR 158 (SC)