Penalty u/s 271(1)(c)

well the AO is right , if hes assessing 2006-07 . if you had realised your mistake , i think returns for previous years should be revised . you cannot debit a prior period expense in current year .

That amount was lying as an advance paid in a party's a/c . it cannot be written off as repairs suddenly after realising the mistake in the current year .

i think praying for penalty is the best option or revise your return (06-07) since the assessment is not over and resubmit that as bad debts instead of repairs . the burden to prove that its not bad debts would lie on the AO . It can be vaguely claimed as bad debts cos the money is not recoverable .

please remember that ignorance of accounting entries / transcations can never be an excuse for law followers.