SRI. BANDI HEMASUNDER REDDY,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(2)(1), BANGALORE

The instant appeal filed by the assessee is directed against the order dated 30.05.2023 passed by the National Faceless Appeal Centre (NFAC), Delhi arising out of the order dated 30.03.2022 passed by the assessing officer u/s. 147 r.w.s.

Infact, in this particular case, the Ld.CIT(A) has uphold the order of the Ld.AO in completing the assessment u/s. 144 though the order passed by the Ld.AO is an ex-parte one. The disallowance under challenge is made upon invoking the Explanation 1 to section 37(1) of the Act to the tune of Rs.9,39,837/- in respect of the penalty paid by the appellant to its clients / customers for breach of contract under the facts and circumstances of the case. At the time of hearing the instant appeal, it was submitted by Ld.Counsel appearing for the assessee that the penalty is for non-performance of contract and this penalty is in course of business expenditure since the same is paid for non-performance of contract and not as a result of committing an offence which is prohibited under any law and same is an allowable expenses u/s. 37 of the Act.

Merely because the assessee’s claim in respect of certain expenditure was not found acceptable, the penalty in the instant case is not allowable as the main argument advanced by the Ld.Counsel appearing for the assessee. In that view of the matter, it was prayed that the matter may be remitted to the file of Ld.CIT(A) for fresh adjudication of the same. Such prayer has not been able to be controverted by the Ld.DR.

Thus having regard to the penalty compensatory in nature and the assessment order is ex-parte, we, for the ends of justice, find it fit and proper to remit the issue to the file of the Ld.AO to verify the same afresh and to pass a reasoned order. The Ld.AO is further directed to give an opportunity of being heard to the assessee and to consider the evidence / judgment to be relied upon by the assessee during the course of hearing of the matter.