IN INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE, BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . ITA No. 750 PN 2013 Assessment Year : 2007-08 Asstt. Commissioner of Income Tax, Circle 1, Aurangabad ....... Appellant V s. M s. Lombardini India Pvt. Ltd., J-2 1, MIDC Chikalthana, Aurangabad PAN : AAACL6740M Respondent Assessee by : Shri Nishant Thakkar Revenue by : Shri P.L. Kureel Date of Hearing : 17-08-2016 Date of Pronouncement : 17-10-2016 ORDER PER VIKAS AWASTHY, JM : This appeal by Revenue is directed against order of Commissioner of Income Tax (Appeals), Aurangabad dated 23-01-2013 for assessment year 2007-08 deleting penalty levied u s. 271(1)(c) of Income Tax Act, 1961 (hereinafter referred to as Act ). 2 ITA No. 750 PN 2013, A.Y. 2007-08 2. brief facts of case as emanating from records are: assessee is engaged in business of design, manufacturing and selling of portable diesel and gasoline combustion engines and their spare parts. In scrutiny assessment Assessing Officer vide order dated 17-02-2011 passed u s. 143(3) r.w.s. 144C of Act inter alia disallowed `2.40 crores claimed by assessee as provisions for retrofitment expenses u s. 37(1) of Act. In respect of entire additions made, Assessing Officer levied penalty of `1,28,65,457 - u s. 271(1)(c) of Act vide order dated 30-06-2011. Aggrieved by penalty order, assessee preferred appeal before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) deleted levy of penalty in toto. Now, Revenue is in appeal against deleting of penalty on account of addition made by Assessing Officer with respect to provisions for retrofit expenses `2.40 crores, alone. 3. Shri P.L. Kureel representing Department submitted that assessee had claimed provisions for retrofitment expenses `2.40 crores, said claim of assessee is not legally sustainable. assessee had not filed any appeal against additions made by Assessing Officer. Commissioner of Income Tax (Appeals) has erred in deleting penalty without considering fact that assessee had accepted additions and claim of provisions for retrofit expenses was wrongly claimed by assessee. ld. DR prayed for reversing findings of Commissioner of Income Tax (Appeals) with regard to deleting penalty on retrofit expenses and further prayed for upholding 3 ITA No. 750 PN 2013, A.Y. 2007-08 findings of Assessing Officer in levy of penalty on disallowances made u s. 37(1) of Act. 4. Au contraire Shri Nishant Thakkar appearing on behalf of assessee vehemently supported findings of Commissioner of Income Tax (Appeals) in deleting entire penalty including penalty levied on provisions for retrofit expenses. ld. AR submitted that assessee has made provisions for retrofitment expenses during financial year relevant to assessment year 2007-08. However, provision was reversed in succeeding financial year. During financial year 2006-07 finished products supplied by assessee to M s. Atul Auto Ltd. were rejected on ground that products supplied were not in accordance with requirements of customer and were defective. entire payment for products supplied by assessee was withheld by M s. Atul Auto Ltd. In backdrop of above facts entire invoiced amount of `2.40 crores was provided for by assessee towards free of cost replacement of defective finished products. assessee is consistently following mercantile system of accounting. provision was created for known liability by way of abundant caution to mitigate eventuality of bearing expenses and to replace finished products free of cost so as to maintain smooth relationship with customer. provision was created wholly and exclusively for business purpose alone. 4.1 ld. AR of assessee contended that Assessing Officer has erred in initiating penalty proceedings for concealment of particulars of income. assessee had fully disclosed provision created. ld. AR referred to Schedule 12 to Profit and Loss account 4 ITA No. 750 PN 2013, A.Y. 2007-08 for year ended 31-03-2007 at page 33 of paper book. ld. AR pointed that under head Manufacturing, Administrative and Other expenses, assessee has claimed Retrofit Expenses amounting to `2.40 crores. ld. AR further referred to page 31 of paper book to show that in Schedule 9 to Balance Sheet as on 31-03-2007, amount `2.40 crores has been show as provision for Retrofit Expenses under head Current Liabilities and Provision . ld. AR further submitted that assessee had furnished explanation for creating provision. However, Assessing Officer rejected explanation furnished by assessee in summary manner. Assessing Officer has not disproved explanation furnished by assessee. Assessing Officer while disallowing amount has not given any reason in assessment order. ld. AR contended that provision made for any ascertained expenditure arising on account of defective goods is allowable. In support of his contentions ld. AR placed reliance on following decisions : i. Bharat Earth Movers Vs. Commissioner of Income Tax, 245 ITR 428 (SC); ii. Rotork Controls India (P) Ltd. Vs. Commissioner of Income Tax, 314 ITR 62 (SC); iii. Commissioner of Income Tax Vs. Durr India Private Limited, 97 DTR 160 (Mad); To strengthen his submissions that no penalty can be levied when all necessary facts are disclosed in books and further where explanation furnished by assessee has been summarily rejected by Assessing Officer without disproving same, no penalty can be levied, ld. AR placed reliance on following decisions : 5 ITA No. 750 PN 2013, A.Y. 2007-08 i. Commissioner of Income Tax Vs. Aditya Birla Nova Limited, 82 CCH 206 (Bom); ii. Commissioner of Income Tax Vs. Nalin P. Shah (HUF), 85 CCH 132 (Bom); iii. Commissioner of Income Tax Vs. Upendra V. Mithani in Income Tax Appeal (L) No. 1860 of 2009 decided on 05-08-2009. 4.2 ld. AR further submitted that even if `2.40 crores was wrongly claimed by assessee same was reversed in return of income in immediately succeeding assessment year. return of income for assessment year 2008-09 was filed on 30-09-2008, whereas assessment order for impugned assessment year was passed on 17-02-2011 i.e. almost after 2 years after date of filing of return of income for assessment year 2008-09. ld. AR referred to page 20 of paper book to show that amount `2.40 crores was offered to tax in return of income for assessment year 2008-09. ld. AR submitted that amount was offered to tax in succeeding assessment year therefore no penalty is leviable. In support of his submissions ld. AR placed reliance on decision of Hon'ble Bombay High Court in case of Jayant Vegoils & Chemicals (P) Ltd. Vs. Commissioner of Income Tax reported as 323 ITR 641. 4.3 ld. AR further submitted that assessee has consistently suffered losses. There can be no intention on behalf of assessee to make false claim. ld. AR pointed that assessee incurred loss of nearly `20 croers in period relevant to assessment year 2007-08, even if addition of `2.40 crores is made, assessee 6 ITA No. 750 PN 2013, A.Y. 2007-08 would still be under loss. In such circumstances no penalty should have been levied. In support of his submissions ld. AR draws support from decision of Pune Bench of Tribunal in case of Amruta Organics Pvt. Ltd. Vs. DCIT in ITA No. 1121 PN 2011 for assessment year 2007-08 decided on 22-03-2013. 5. We have heard submissions made by representatives of rival sides and have perused orders of authorities below. We have also considered various decisions from which ld. AR of assessee has drawn support to buttress his contentions. In assessment proceedings Assessing Officer has made additions on several counts. Penalty proceedings u s. 271(1)(c) of Act were initiated for concealment of particulars of income in respect of all additions made during course of assessment. Assessing Officer levied penalty of `1,28,65,457 - qua additions made. In first appeal, Commissioner of Income Tax (Appeals) deleted entire penalty after considering explanation furnished by assessee. 6. Revenue is in appeal before Tribunal against deleting of penalty on additions of `2.40 crores i.e. amount claimed by assessee as provisions for retrofit expenses. Commissioner of Income Tax (Appeals) deleted penalty by observing as under : appellant's contention that said provision of Rs.2,40,00,000 - has been reversed in A.Y. 2008-09 is also supported by assessment order for A.Y. 2008-09. fact of reversal of provision is noted in para-7 of assessment order and necessary relief has been allowed by A.O. in A.Y. 2008-09. It is settled law that in case where dispute of allowability of expenditure is about year of allowability, penalty u s. 271(1)(c) is not leviable. This proposition of law is supported by decision of Hon'ble Bombay High Court in case of 7 ITA No. 750 PN 2013, A.Y. 2007-08 ]ayant Vegoils & Chemicals (P) Ltd. (2010) 323 ITR 641. Further, in view of above facts, appellant has not concealed any particulars of income particularly in view of ratio laid down in case of CIT Vs. Indian Metal & Ferro Alloys Ltd. (1994) 117 CTR 378 (Orissa). 7. perusal of penalty order shows that penalty has been levied for concealment of particulars of income. perusal of audited balance sheet as on 31-03-2007 and profit and loss accounts for year ended 31-03-2007 placed on record at pages 25 to 40 of paper book shows that assessee had clearly mentioned about retrofitment expenses in Profit and Loss Accounts and Provisions for Retrofit Expenses under head Current Liabilities in Balance Sheet. Thus, observation made by Assessing Officer that assessee has concealed particulars of income does not hold ground. 8. perusal of order levying penalty shows that assessee had offered explanation for claiming Provisions for Retrofitment Expenses. However, Assessing Officer rejected same summarily in mechanical manner without verifying explanation furnished by assessee. assessee has placed on record copy of Civil Suit filed by M s. Atul Auto Ltd. against assessee and others in Court of Civil Judge, Gondal, Distt.-Rajkot claiming replacement retrofitment and fixation of additional charges of engines vehicles. This clearly shows that explanation furnished by assessee was bonafide and genuine. 9. Hon'ble Bombay High court in case of Commissioner of Income Tax Vs. Upendra V. Mithani (supra) has upheld view 8 ITA No. 750 PN 2013, A.Y. 2007-08 taken by Tribunal in deleting penalty where explanation furnished by assessee is unproved but not disproved, i.e. it is not accepted but circumstances do not lead to reasonable and positive inference that assessee s case is false. We find that in present case assessee s case is rather on better footing. assessee has been able to show that there was dispute between assessee and M s. Atul Auto Ltd., one of customers of assessee. assessee had created provisions for retrofitment charges in anticipation of expenditure. It is undisputed fact that assessee has offered amount in immediately succeeding assessment year i.e. assessment year 2008-09. Once, amount has been offered to tax there cannot be levy of penalty merely because of dispute in year of assessment. 10. Hon'ble Bombay High court in case of Jayant Vegoils & Chemicals (P) Ltd. Vs. Commissioner of Income Tax (supra) deleted penalty where amount in question was offered for taxation in next year. There was no deliberate lapse on part of assessee in claiming deduction in year under consideration. 11. We further find force in contention of assessee is that since, assessee had consistently returned loss for assessment years 2006-07, 2007-08 and 2008-09 and in assessment year under consideration assessee had suffered losses of `18.37 crores even if amount of `2.40 crores is added still assessee would have returned loss. Therefore, we do not find any deliberate act on part of assessee to make false inaccurate claim by creating 9 ITA No. 750 PN 2013, A.Y. 2007-08 provisions for retrofitment expenses in assessment year under appeal. 12. We find no error in order of Commissioner of Income Tax (Appeals) in deleting penalty on additions made by Assessing Officer in assessment proceedings. Accordingly, appeal of Revenue is dismissed being devoid of any merits. 13. In result, appeal of Revenue is dismissed. Order pronounced on Monday, 17th day of October, 2016. Sd - Sd - (R.K. Panda) ( Vikas Awasthy) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated : 17th October, 2016 RK Copy of Order forwarded to : 1. Appellant. 2. Respondent. 3.The CIT(A), Aurangabad 4. CIT, Aurangabad 5. DR, ITAT, B Bench, Pune. 6. Guard File. True Copy BY ORDER, Private Secretary, , ITAT, Pune Asstt. Commissioner of Income-tax, Circle 1, Aurangabad v. M/s. Lombardini India Pvt. Ltd