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Facts
The assessee purchased properties and made a part payment of Rs. 23,92,500/- in cash exceeding Rs. 20,000/-. The AO made an addition of this amount under Section 40A(3) and initiated penalty proceedings under Section 271(1)(c). The CIT(A) confirmed the penalty.
Held
The Tribunal held that for a penalty under Section 271(1)(c) to be levied, there must be concealment of income or furnishing of inaccurate particulars. The addition under Section 40A(3) itself does not automatically attract penalty. Since the AO did not provide evidence of concealment or inaccurate particulars, the penalty was not sustainable.
Key Issues
Whether the penalty under Section 271(1)(c) is leviable when the addition is made solely on account of disallowance under Section 40A(3) without proving concealment of income or inaccurate particulars.
Sections Cited
271(1)(c), 40A(3)
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आदेश/Order Per Krinwant Sahay, A.M.:
1. Appeal in this case has been filed by the Assessee against the order of the ld. CIT(A)-5, Ludhiana dated 18.06.2021 for assessment year 2012-13.
2. Grounds of appeals are as under:-
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1. That the Ld. CI(A), Ludhiana has erred in confirming the levy of penalty u/s 271(1)(c) amounting to Rs.7,39,283/-, which have been imposed in contravention to the provisions of section 40A(3) of the Income Tax Act.
2. That the Ld. CIT(A) has failed to appreciate that all such particulars of the payments having been made u/s 40A(3) have already been disclosed and the disallowance has been made on account of deeming provisions and, therefore, no penalty u/s 271(1)(c) could be imposed.
3. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
Brief facts of the case, as per written submissions filed by the Counsel of the Assessee, are as under: -
1. The Assessee Company filed his return of income on 22.09.2012 declaring income of Rs. 18,49,600/-.
2. The case of the Assessee was selected for scrutiny under CASS.
3. The Assessee Company during the year under consideration has purchased properties amounting to Rs. 8,30,12,790/-. The Assessee has made maximum payments through cheques and has made part payment to the tune of Rs. 23,92,500/- in cash. Exceeding Rs. 20,000/-. The AO by applying the provisions of section 40A(3) of the Act made the addition to the tune of Rs. 23,92,500/- and also initiated the penalty proceedings u/sec 271(1)(c) of the Act.
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4. There is no dispute regarding the identity of the seller of the land. The copies of the purchase deeds were duly filed with the CIT(A). There is no dispute regarding the source of the amount paid as the amount has been paid from the regular books of accounts of the Assessee. Most importantly the amount has been paid before the Sub-Registrar which is a Government department. It is also very much agreeable that the agriculturist insist on receiving the payments in cash and moreover, in many cases it also occurs that the agriculturist do not execute the deal unless and until the payment is to be made in cash.
5. The quantum appeal on this issue was dismissed by Worthy CIT(A) and the same is pending before the Hon'ble Bench.
6. On account of penalty provisions on the issue of 40A(3) of the Act, it is submitted that the said disallowance is made for payment of cash expenditure exceeding Rs.20,000/- i.e. addition has been made for not complying with the provisions of the Act and there is no case of concealment of income or furnishing of inaccurate particulars of income. Further, the genuineness of the expenditure has also not been doubted by the AO and therefore, it is also not the case of any bogus expenditure.
Further, it is submitted that even though the expense is not allowed u/s 40A(3) of the Act, but it does not conclude that the claim of expense made by the Assessee was a false claim. The expenditure was incurred for business expediency and purely a genuine expense. There is only a difference of opinion between the AO and the assessee that expenditure has been disallowed by the AO which nowhere means that the 939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 4
assessee has furnished inaccurate particulars of income.
8. Further, it is submitted that it is a settled law that addition u/s 40A(3) is merely disallowance of a claim made by the Assessee and no penalty can be levied on such disallowance as there is no concealment or furnishing of inaccurate facts involved in making a claim. Reliance in this regard is placed on the following judgments:
M/s Vistar Constructions Pvt. Ltd. Vs. Dy. Commissioner of Income Tax /Del /2011 (19.10.2012)
Income Tax Officer Vs. Mangey Ram Tyagi (24.01.2013)
3. ITO vs M/s Besto Tradelink P Ltd in order dated 09.06.2015.
M/s Indian Aluminum Company Ltd. vs ACIT in order dated 04.03.2015.
Shri Balbir Singh vs ITO in order dated 06.02.2015 (Chandigarh Bench)
5. The ld. DR relied on the order of the ld. CIT(A).
In the proceedings before us, the ld. Counsel for the Assessee argued that penalty u/s Section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act') is leviable only in case of concealment of income or in case of filing of 939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 5 inaccurate particulars by the Assessee before the A.O. In the instant case, neither of these conditions are fulfilled. The Counsel further argued that it is a case where addition has been made u/s 40A(3) on the basis of particulars filed by the Assessee before the A.O. Since the A.O. has taken certain payments above Rs. 20,000/- in violation of section 40A(3) of the Act, therefore, additions have been made but in such a situation, there is absolutely no concealment of facts by the Assessee before the A.O. The ld. counsel has further argued whatever payments were made, it was made by cheques which were brought on record by the Assessee and at the same time wherever payments were made in cash, they were also brought on record by the Assessee. The A.O. has also not found anything wrong with the filing of the details / particulars by the Assessee.
6. The ld. Counsel of the Assessee has also brought on record further two case laws in the case of ‘Lakhwinder Singh v ITO’, order dated 9.9.2022, during the proceedings before the Bench, in which it has been held as under: -
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"7. Considering the peculiar facts and circumstances of the present case, I set aside the order quashing the penalty imposed. While so directing, it is made clear that the argument that payments are genuinely for the purpose of Section 40(A)(3) have no relevance. The evidence and explanation may be good enough to sustain the addition, however, in the penalty proceedings, the explanation considering the peculiar facts as set out herein has been accepted."
Another case law relied upon by the ld. Counsel of the Assessee is the decision of the Hon'ble jurisdictional High Court in ‘PCIT vs. Torque Pharmaceuticals Ltd.’ in 82 taxmann.com 283, wherein it has been held that while dealing with the case of penalty imposed u/s 271(1)(c) on account of disallowance u/sec 40a(ia) that the assessee made a bonafide claim of deduction of the expenditure even though it was not acceptable to the revenue, the same would not lead to the conclusion that the assessee had concealed the particulars of income or filed inaccurate particulars of income.
7. We have considered the findings of the A.O. in the penalty order as well as the justification of the ld. CIT(A) in the appeal order. We find that the Assessing Officer has not 939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 7 brought on record anything that proves that there is an attempt to conceal facts from the Assessing Officer. The Assessing Officer has also not brought anything on record to prove that the Assessee has made any attempt to file inaccurate particulars before him. In the absence of both the elements, we are of this considered view that penalty u/s Section 271(1)(c) of the Act cannot be levied. Both the authorities below, i.e., Assessing Officer and the CIT(A) could not find anything on record to fulfil the requirement, such as, concealment of income or furnishing of inaccurate particulars on record. We have also consider the case laws of the Coordinate Bench in the case of ‘Lakhwidner Singh vs. ITO’, and the decision of the jurisdictional High Court in the case of ‘PCIT vs. Torque Pharmaceuticals Ltd.’ From these orders is very clear that making addition u/s 40A (3) of the Act does not necessarily attract penalty provisions of section 271(1)(c) unless it is brought on record by the Assessing Officer that there is concealment of relevant facts by the Assessee or there is an attempt of filing inaccurate particulars by the Assessee. Here, both the elements are missing, therefore, action of the ld. CIT(A) in confirming the 939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 8 penalty u/s Section 271(1)(c) of the Act cannot be sustained. Accordingly, Assessee’s appeal on the issue is allowed.
In the result, Assessee’s appeal is allowed.
Order pronounced on 3.02.2025.