The Bombay High Court held that making a wrong claim is not at par with concealment or giving inaccurate information which may call for levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
The assessee, Ventura Textile Ltd. is a resident company. The assessee filed its return of income declaring total loss. The case was selected for scrutiny. During the assessment proceedings, it was found amongst others that the assessee has debited an amount under the head “selling and distribution expenses” and claimed it as bad debts in the books of account and claimed deduction. Subsequently, it was found that it was paid to M/s JCT Ltd. as compensation for the supply of inferior quality of goods.
The AO in the view that the assessee has furnished inaccurate particulars of income, Assessing Officer ordered that penalty proceedings under Section 271(1)(c) of the Act be initiated separately.
The core issue in the appeal is sustaining by the lower appellate authorities the imposition of penalty under Section 271(1)(c) of the Act by the Assessing Officer on account of disallowance claimed as a deduction under Section 36(i)(vii) of the Act on account of bad debt and subsequently claimed as a deduction under Section 37 of the Act as expenditure expended wholly and exclusively for the purpose of business.
The division bench of Justice Milind N. Jadhav and Justice Ujjal Bhuyan held that making a wrong claim is not at par with concealment or giving inaccurate information which may call for levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
“It is quite evident that the assessee had declared the full fact, factual matrix or facts were before the assessing officer while passing the assessment order. It is another matter that a claim based on such fact was found to be inadmissible. This is not the same thing as furnishing inaccurate particulars of income as contemplated under Section 271(1)(c) of the Act,” the court said.
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