Penalty 271(1)(c) deleted on debatable issue of revenue or capital receipt of the freight subsidy

Penalty 271(1)(c) deleted on debatable issue of revenue or capital receipt of the freight subsidy not accounted for on mercantile basis.

ABCAUS Case Law Citation:
ABCAUS 2442 (2018) 07 ITAT

The instant appeal was filed by the assessee against the order passed by the CIT(A) in confirming the penalty levied by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 (the Act).

During the assessment proceedings the Assessing Officer noticed that in the Profit & Loss Account, the assessee had claimed expenses under the head “Freight outward (net)”. The assessee was asked to file details of freight  subsidy received/receivable from government.

The assessee submitted that he had not received freight subsidy during the financial year relevant to assessment year under consideration and as such the amount of freight subsidy was not accounted for.

The Assessing Officer, however, observed that the assessee was maintaining his account on mercantile basis and that the amount of freight subsidy received by it should have been reflected in the Balance Sheet and Profit & Loss Account. He, therefore, worked out the total freight subsidy and disallowed and added back the same to the income of the assessee.

He also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income and thereby levied the impugned penalty.

The CIT(Appeals) confirmed the impugned penalty.

Before the Tribunal the assessee submitted that the impugned penalty had been levied on account of non setting off the amount receivable as freight subsidy as against the expenditure claimed.

He further submitted that the freight subsidy is given as an incentive by the Government of the State to units established in the economically backward and remote area of the State for the development of the area and for generation of employment. Whether the freight subsidy was a revenue receipt or capital receipt, was a debatable issue, hence, the penalty u/s 271(1)(c) of the Act was not attracted.

The Tribunal observed that the issue relating to receipt of freight subsidy whether it was capital or revenue receipt in the case of the assessee, was a debatable issue. Even the assessee had not received freight subsidy till date.

The Tribunal opined that the penalty proceedings u/s 271(1)(c) of the Act were attracted in this case.

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