CHIEF COMMISSIONER OF INCOME TAX (OSD) - CENTRAL - I vs. SUPER INDIA CONSTRUCTION

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TAXAP/389/2012HC GujaratGJHC24022813201219 July 2012Author: HONOURABLE MR. JUSTICE VIJAY MANOHAR SAHAI,HONOURABLE MR. JUSTICE N.V.ANJARIA4 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal was justified in upholding the deletion of the penalty. The assessee had explained that the painting work was performed by a sub-contractor, M/s Om Painting Works, and payments were made accordingly. The genuineness of the expenditure was not doubted by the Assessing Officer (AO). The AO's doubt stemmed from the absence of the specific term 'painting work' in the assessee's bills, which the Tribunal found insufficient to disbelieve the assessee's claim. Furthermore, the assessee submitted that such expenditure constituted only about 2% of the total income, and ledger accounts supported the payments to the sub-contractor. The Tribunal reasoned that there was no concealment or furnishing of inaccurate information. Relying on the Supreme Court's decision in CIT v. Reliance Petroproducts Pvt. Ltd. (322 ITR 158), the Tribunal held that penalty provisions cannot be invoked unless the case is strictly covered by them. The High Court agreed that no case was made out for penalty, as there was no concealment, the genuineness of expenditure was not questioned, and no intention to evade duty or willful concealment/misstatement was demonstrated. Therefore, the Tribunal committed no error in deleting the penalty.

What were the facts?

The Revenue, Chief Commissioner of Income Tax (OSD) - Central - I, has appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated December 30, 2008, which upheld the deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. The assessment year in question is 2005-2006. The Assessing Officer (AO) had made additions to the assessee's income for unexplained expenditure (Rs. 21,56,700) and undervaluation of Work-in-Progress (WIP) (Rs. 82,46,721). The assessee did not appeal these additions but contested the penalty. The AO imposed penalty under Section 271(1)(c) on the grounds of concealed income due to a dubious method of claiming expenditure and valuing WIP. The CIT(A) deleted the penalty, and the ITAT confirmed this deletion.

What were the issues?

1. Whether the Appellate Tribunal erred in upholding the CIT(A)'s deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961, when the assessee allegedly adopted a dubious method of claiming expenditure and valuing WIP, thereby reducing taxable profit and demonstrating a deliberate intention to furnish inaccurate particulars of income? Assessee's Contention (as inferred from CIT(A) and ITAT's reasoning): The painting work was done by a sub-contractor, M/s Om Painting Works, and payments were made to them. The expenditure constituted only about 2% of the total income. The additions were made by the AO solely because the word 'painting' was not specifically mentioned in the bills. The genuineness of the expenditure was not doubted by the AO. Copies of ledger accounts supported the payments to the sub-contractor. Revenue's Contention (as stated in the proposed question of law): The assessee had adopted a dubious method of claiming expenditure and valuing WIP, reducing taxable profit, indicating a deliberate intention to furnish inaccurate particulars of income. The penalty was justified.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 143(3),Section 260A

AI-generated summary — verify with the full judgment below

TAXAP/389/2012 1/4 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 389 of 2012 For Approval and Signature: HONOURABLE MR.JUSTICE V. M. SAHAI HONOURABLE MR.JUSTICE N.V. ANJARIA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= CHIEF COMMISSIONER OF INCOME TAX (O ) - CENTRAL - I - Appellant(s) Versus SUPER INDIA CONSTRUCTION - Opponent(s) ========================================================= Appearance : MRS MAUNA M BHATT for Appellant(s) : 1, None for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE V. M. SAHAI and HONOURABLE MR.JUSTICE N.V. ANJARIA Date : 19/07/2012 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE N.V. ANJARIA) The present appeal preferred by the Revenue under Section 260A of the Income Tax Act, 1961 arises out of the order dated

TAXAP/389/2012 2/4 JUDGMENT 30/12/2008 of the Income Tax Appellate Tribunal, 'D' Bench, Ahmedabad passed in ITA No. 703 of 2009.

1.

1 The appellant has raised the following question, proposing it as a substantial question of law : “Whether the Appellate Tribunal has substantially erred in upholding the decision of CIT(A) in deleting the penalty levied u/s 271 (1) (c) of the Act, when it was clearly established that the assessee had adopted dubious method of claiming expenditure, valuation of work in progress and thereby reducing the taxable profit and therefore, it was the deliberate intention of the assessee firm to furnish inaccurate particulars of income?”

2.

We heard learned advocate Ms. M.M.Bhatt, learned counsel for the appellant.

3.

The facts involved are that the income of the assessee for the assessment year 2005-2006 was assessed and an order under section 143 (3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for sake of brevity) was passed on 28.12.2007. The assessing officer made additions on account of unexplained expenditure of Rs. 21,56,700/- and also on account of undervaluation of Work-in-progress (WIP) for Rs. 82,46,721/-. The assessee did not file appeal against the above additions. The proceedings for levying penalty under section 271(1)(c) of the Act were initiated and the assessing officer passed order dated 27.06.2008 imposing the penalty. According to the assessing officer, the assessee had carried out the painting work at various sites, which, was an integral part of the contract. On the premise that the assesse had concealed the income, the assessing officer imposed the penalty.

TAXAP/389/2012 3/4 JUDGMENT

3.1.

The order of penalty was appealed against by the assessee. The Commissioner of Income Tax (A) by his order dated 10.12.2008 deleted the penalty imposed by the assessing officer. Aggrieved by the said order dated 10.12.2008, the department preferred an appeal before the Income Tax Appellate Tribunal, which has culminated into the impugned order.

4.

While deleting the penalty, the CIT(A) considered the explanation of the assessee that painting work was done by the sub-contractor one M/s Om Painting Works and the bills were paid to that sub-contractor. It was submitted that even otherwise the said income constituted only 2% of the total income. The appellate Commissioner observed that the additions were made by the assessing officer only for the reason that the word ‘painting’ was not specifically mentioned in the bills raised by the assessee. It was observed by him also that the levy of penalty was in a summary manner without giving any reason as to how there was a concealment of income.

5.

The Income Tax Appellate Tribunal has confirmed the order of the CIT(A) by observing : “The assessee explained that work was done by the sub- contractor M/s Om Painting work and all the bills were raised at the end of the year which was paid subsequently. The genuineness of the expenditure was not doubted by the AO. The AO doubted the payments because there was no specific mention of the word “painting work” in the bills raised by the assessee. Such a reason was not sufficient to disbelieve the claim of the assessee. Further, the assessee claimed that cost of such painting work was about 2% and copies of the ledger accounts if the parties were filed in the paper book referred to above which clearly support the contention of the assessee that payments were made to the sub-contractor for painting work.”

TAXAP/389/2012 4/4 JUDGMENT

5.1.

The Tribunal has reasoned that there is no concealment or giving of inaccurate information. It relied on the decision of the Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd. ( 322 ITR 158) , wherein it is observed that unless the case is strictly covered by the provisions, the penalty provision can not be invoked.

6.

The Tribunal is justified in recording the findings that no case was made out for levy of penalty. From the facts it could be seen that there was no concealment. The genuineness of the expenditure was not questioned by the Assessing Officer. No intention to evade duty on part of the assessee could be inferred. No willful concealment or misstatement of facts was demonstrated.

7.

The Tribunal did not commit any error in recording its findings and arriving at the conclusion that there was no justification for penalty. The appeal is therefore meritless. Accordingly, the appeal is dismissed. [V.M.SAHAI, J.] [N.V.ANJARIA,] cmjoshi

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