No Penalty 271(1)(c) for disallowance 43B if quantum not disputed and following mercantile accounting it could be debited to PL A/c – ITAT

No Penalty 271(1)(c) for disallowance 43B if quantum not disputed and following mercantile accounting it could be debited to Profit and Loss A/c – ITAT

ABCAUS Case Law Citation:
ABCAUS 1230 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the CIT(A) qua confirmation of penalty u/s 271(1)(c) of Income Tax Act, 1961 (‘the Act’).

Assessment Year : 2006-07
Date/Month of Pronouncement: May, 2017

Brief Facts of the Case:
The appellant assessee was a limited company which was assessed u/s 143(3) wherein disallowances were made regarding depreciation claimed u/s 32 on the premises that no business operations were carried on by the assessee during the year & for disallowance made u/s 43B regarding claim of interest. Thereafter, the Assessing Officer (‘AO’) initiated penalty proceedings for furnishing of inaccurate particulars of income by issuance of notice u/s 274 read with Section 271(1)(c) of the Act.

Finally, the AO imposed the penalty which was confirmed by the CIT(A).

Aggrieved, the assessee was in appeal before the Tribunal.

Contentions of the appellant assessee:
It was submitted that due to adverse business conditions, the business of the assessee was adversely affected and therefore, no significant business operations could be carried out during the impugned AY. Nevertheless, the suspension of business was only temporary in nature. Also, the block of assets did not cease in the books of accounts and as the suspension in business was temporary, depreciation thereof was allowable to the assessee as per various judicial pronouncements. Regarding disallowance u/s 43B it was contended that the disallowance was made only due to non-payment within the stipulated time period. However, the nature or quantum of the same was never in dispute and the assessee, following mercantile system of accounting, was quite eligible to debit the same in the Profit & Loss Account and therefore, no penalty against such disallowance could be imposed as per the decision of Hon’ble Madras High Court in CIT Vs. MSK Constructions (P) Ltd.

It was further submitted that the assessee incurred huge losses during the impugned AY but the same could not be carried forward by him in the next AY in view of the fact that the return of income was filed belatedly which made assessee ineligible to carry forward the said business losses and therefore, the assessee stood to gain nothing by making inaccurate claim.  

Contention of the Respondent Revenue:
It was contended that the assessee did not carry on any business during the year but still claimed the said expenditure fully knowing that the same were not admissible. Upon being caught by the department in scrutiny proceedings, the assessee accepted the quantum additions and did not contested the same any further which, in itself, casted a doubt upon the conduct of the assessee and therefore the penalty was rightly imposed.

Observations made by the Tribunal:
The Tribunal found that the assessee had suffered disallowance u/s 32 against depreciation & u/s 43B due to non-payment of certain interest expenses within stipulated period of time. It was not in dispute that the assessee did not carry out any business activity during the year. It is further noted that the block of asset in the books of accounts did not cease to exist and the assessee had duly explained that the suspension in business was temporary which could not be controverted by the revenue.

The ITAT found that all those factors gave strength to the various arguments of the assessee. Regarding the addition u/s 43B, it was found that the nature or quantum thereof was not in dispute and the assessee, following mercantile system of accounting could debit the same in his Profit & Loss Account. It was only due to the specific provisions of Section 43B that it has suffered the said disallowance. Therefore, on the basis of these factors, the ITAT opined that there were no furnishing of inaccurate particulars of income by the assessee and the penalty deserved to be deleted.

Held:
The ITAT placing reliance on decision of the Hon’ble Madras High court, deleted the penalty and allowed assessee’s appeal on merits.