GMW PRIVATE LIMITED,VADODARA vs. THE DY.CIT, CIRCLE-1(1)(1), VADODARA

Aggrieved with the penalty order of the AO, the assessee had filed an appeal before the First Appellate Authority, which was decided vide the impugned order and the appeal of the assessee was dismissed.

Now, the assessee is in second appeal before us. The following grounds have been taken by the assessee in this appeal:

Shri Surendra Modiani, the Ld. AR appearing for the assessee explained that in the assessment order the AO did not initiate penalty u/s.270A of the Act in respect of addition of Rs.24,38,562/- made in respect of belated payment of EPF & ESI. He submitted that the relevant facts regarding payment to EPF & ESI were already disclosed in the Tax Audit Report by the assessee itself and, therefore, the penalty was not justified even on merits. Regarding second addition of additional depreciation on purchase of used machinery, the Ld. AR explained that there was a bona-fide mistake by the assessee in this regard and this fact was brought to the notice of the AO in the case of assessment proceedings. The Ld. AR further submitted that the claim for Private Limited vs. DCIT] A.Y. 2017-18 - 3 – depreciation was otherwise also allowable in subsequent years and, therefore, there was no intention of the assessee to claim any excess or additional depreciation. As regarding third issue of addition of Rs.1,67,740/- in respect of penalty charges, the Ld. AR explained that the assessee was engaged in the business of executing contracts for power plants. Such contracts normally stipulated penalty for delay in execution of contract. The Ld. AR explained that the penalty amount debited to the account was penalty for delay in execution of contracts and it was not for infraction of any law. Therefore, no penalty u/s.270A of the Act was called for in respect of such addition.

Per contra, Shri Rignesh Das, Ld. Sr. DR relied upon the orders of the AO and the CIT(A).

We have carefully considered the rival submissions. As regarding first addition of belated payment of EPF & ESI is concerned, it is found from the assessment order that no penalty u/s. 270A of the Act was initiated by the AO in respect of this addition. The initiation of penalty is sine qua non for levy of penalty and the AO could not have levied the penalty without initiating the penalty proceeding in respect of this addition. In the show cause notice also for the penalty as issued by the AO, no mention of penalty in respect of addition of Rs.24,38,562/- in respect of belated payment of EPF & ESI is mentioned. Therefore, the penalty imposed in respect of this addition is liable to be quashed.

As regards the addition of Rs.1,95,737/- in respect of additional depreciation, the AO has reproduced the submission of Private Limited vs. DCIT] A.Y. 2017-18 - 4 – the assessee in this regard in the assessment order. The assessee had categorically admitted that additional depreciation on old and used machinery was claimed due to oversight. As explained by the assessee, this was a bona-fide mistake admitted by the assessee and there was no intention on the part of the assessee to misreport its income. Therefore, levy of penalty in respect of this addition was also not justified.

With regard to third addition of penalty charges, the penalty debited by the assessee to its account was not for infraction of any law. The contractual penalty paid by the assessee cannot be equated with penalty for an offence which is prohibited by law. Merely because the assessee has not disputed this addition, this cannot be a ground to levy the penalty.

Considering the explanation of the assessee and the facts of the case, we are of the considered opinion that no levy of penalty u/s.270A of the Act was called for in this case. In view of above facts and discussions, the order of the AO levying penalty of Rs.4,32,915/- u/s.270A of the Act, is cancelled.

In the result, the appeal of the assessee is allowed.