Concealment penalty quashed as assessee was unaware of statute which disallows 'provision for bad-debts'

Where assessee instead of writing off bad debt, made a provision for bad debts under a bona fide belief that amount had become irrecoverable, penalty order passed under section 271(1)(c) for raising a false claim of bad debts was not sustainable

In the instant case, the assessee wrote off certain amount as provision for bad debts and claimed deduction for the same under section 36(1)(vii). However, AO disallowed the said claim and passed a penalty order under section 271(1)(c) for raising a false claim for bad debts. Further, the CIT(A) reversed the order of AO by holding that a mere technical error in claiming an irrecoverable amount wouldn't attract penalty provisions.

On appeal, the Tribunal held in favour of assessee as under:

1) It was an admitted fact that assessee's claim was legally invalid. However, in view of the uncertainty as to realization of debt, the assessee made a provision against its dues under the bona fide belief that the same was allowable, and there was no attempt to conceal this fact;

2) The inference as to the assessee's bona fides flow from its conduct of full disclosure. It was not necessary that the bona fides of assessee's explanation, which no doubt had to be shown by an assessee, was to be so only on the basis of some materials.

In view of the above, the matter was restored to the file of the AO to adjudicate the same afresh per a speaking order in accordance with law, allowing the assessee a proper opportunity to present its case - DCIT v. VRB INVESTMENT (P.) LTD. [2012] 28 taxmann.com 244 (Kolkata - Trib.)