No penalty can be levied on addition made in respect of bad debts claimed on the basis of a bona belief:

AO levied penalty on the addition made in respect of bad-debts. Hon’ble ITAT observed that the assessee had earlier sold factory shed but couldn’t recover entire sale proceeds and hence, the unrealized sum was claimed as bad-debts. AO was of the view that since the transaction as to sale of factory shed was not a trading transaction, loss on account of non-realization of such sale proceeds was a capital loss and hence, it wasn’t allowable as bad-debts. It was further observed that the claim of bad-debts was duly reflected in P&L a/c as well as return of income. It was not the case that the assessee had not disclosed the amount or had concealed the particulars of income. Assessee’s contention was that it was of bona fide view that since amount written off was out of amount that had already been offered to tax, it was eligible for the claim of bad-debts and such bona fide belief of the assessee had not been controverted by the Revenue by bringing any tangible material on record. Hence, relying on the decisions in the cases of “Price Waterhouse Coopers Pvt. Ltd. vs. CIT – 348 ITR 306 (SC)”, the penalty was deleted.

[M/S. POONAM PROTEINS PVT. LTD. Vs. ITO – ITA No.1626/Ahd/2010]