The main legal point established in the judgment is the requirement for clarity in the notice for the imposition of penalty under Section 271(1)(c) of the Income Tax Act, specifying the ground for which penalty is sought to be imposed, and the distinction between concealment of income and furnishing inaccurate particulars of income.

JUDGMENT

1. Heard Ms Aarti Sathe, learned counsel for the appellant / assessee and Mr. Akhileshwar Sharma, learned standing counsel, Revenue for the respondent.

2. This appeal has been preferred by the assesee under Section 260-A of the Income Tax Act, 1961 (briefly 'the Act' hereinafter) against the order dated 11.01.2017 passed by the Income Tax Appellate Tribunal, 'F' Bench, Mumbai ('Tribunal' for short) in I.T.A.No.5535/Mumbai/2014 for the assessment year 2003-04 filed by the assessee.

3. The appeal has been preferred by the assessee projecting the following questions as substantial questions of law:-

"A. Whether on the facts and in the circumstances of the case and in law the Tribunal erred in upholding the levy of penalty u/s.271(1)(c) of the Act of Rs.22,08,860/- (Rupees Twenty-Two Lakhs Eight Thousand Eight Hundred and Sixty only) on account of disallowance of Rs.62,47,460/- (Rupees Sixty Two Lakhs Forty Seven Thousand Four Hundred and Sixty only) which was allowable as a deduction under the provisions of Section 37 of theAct?

B. Whether on the facts and in the circumstances of the case and in law the Tribunal erred in not applying the ratio laid down by the Apex Court in the case of CIT Vs. Reliance Petroproducts Private Limited, 322 ITR 158 (SC), which was squarely applicable to the facts of the present case?

C. Whether on the facts and in the circumstances of the case and in law the Tribunal grossly erred in upholding the levy of penalty under Section 271(1)(c) of the Act without appreciating / considering that:

(i) the appellant had not been found to have concealed particulars or furnished inaccurate particulars of its claims;

(ii) the aforesaid claim could be allowed under Section 37 of the Act as incurred wholly and exclusively for the purposes of business;

(iii) no income has been concealed / avoided as inter alia the settlement with JCT took place in assessment year 2003- 2004, when the claim was made by the appellant under the provisions of Section 37 of the Act.

D. Whether on the facts and in the circumstances of the case the Tribunal ought to have held that the order passed under Section 271(1) (c) is bad in view of the fact that both at the time of initiation as well as at the time of imposition of the penalty the Assessing Officer was not clear as to which limb of Section 271(1)(c) was attracted?"

4. From the above it is evident that the core issue in this appeal is sustaining by the lower appellate authorities the imposition of penalty of Rs.22,08,860.00 under Section 271(1)(c) of the Act by the Assessing Officer on account of disallowance of Rs.62,47,460.00 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.

5. For appreciation of the questions proposed, it would be apposite to deal with the relevant facts.

6. Respondent is an assessee under the Act (hereinafter referred to as 'the assessee' also), having the status of resident company. Assessment year under consideration is 2003-04. Assessee filed its return of income declaring total loss at Rs.4,66,68,740.00. The case was selected for scrutiny assessment. During the assessment proceedings it was found amongst others that assessee had debited Rs.62,47,460.00 under the head 'selling and distribution expenses' and claimed it as bad debt in the books of account thus claiming it as a deduction under Section 36(1)(vii) of the Act. Subsequently it was found that the aforesaid amount was paid to M/s. JCT Ltd. as compensation for the supply of inferior quality of goods. Thus Assessing Officer held that the amount of Rs.62,47,460.00 claimed as bad debt was not actually a debt and therefore it was not allowable as a deduction under Section 36(1)(vii) of the Act. Assessing Officer further held that the said claim was also not admissible even under Section 37(1) of the Act, with the observation