UP GOVERNMENT EMPLOYEES WELFARE,LUCKNOW vs. ACIT, NFAC, DELHI

Page 3 of 7 Therefore, the society had not filed any appeal against the assessment order u/s 143(3) of the Act. It was submitted that according to Section 270A(6) of the Act any estimated addition could not be subject matter of penalty u/s 270A of the Act if the assessee offered an explanation which was bona-fide and the assessee had disclosed all materials facts to substantiate the explanation; if under-reported income was determined on the basis of estimate where the accounts are correct and complete but the method employed was such that income could not be properly deduced and if the amount of under-reported income was determined on the basis of estimate despite fact that the the assessee had estimated a lower amount on the same issue, included such amount in the computation of his income and disclosed all the facts materials to the additions of the disallowance. The assessee submitted that with regard to disallowance of interest, the assessee society had taken unsecured loan from UP Government which was both interest bearing and non interest bearing. There was nothing to show that the society had bifurcated the unsecured loan into interest bearing and not interest bearing, for claiming of any extra interest. Therefore, the addition on this amount was not sustainable. With regard to the disallowance of interest actually claimed, it was submitted that Rs. 200 crores was given by the UP Government Food & Civil Supply Department with interest rate @ 13.01% per annum for the purchase of Wheat and Paddy for supply to FCI in different districts of Uttar Pradesh. This was disbursed on different dates in installments and as per requirement to purchase wheat and paddy from farmers. The said amounts had been paid to the farmers on different dates as per details received from FCI. The assessee had provided the details of the above expenses but Assessing Officer had still made addition of Rs.1.72 crores during the assessment proceedings.

Page 4 of 7 With regard to disallowance u/s 40(a)(ia) of the Act, the assessee submitted that it had 161 depots, all depots have maintained separate books of accounts, compliance with TDS had been made through separate TAN numbers and a few details of TDS had been supplied because it was not possible for the society to upload all the TDS data at the income tax site during the assessment proceeding. The entire amount of expenses u/s 40(a)(ia) of the Act had been done on estimate basis @ 15%. Penalty u/s 270A of the Act was not leviable on this. It was also pointed out that 15% of business expenditure had been disallowed out of advertising expenses, loss in transit during wheat purchase, deduction by FCI on wheat bills, mandi tax, milling charges and driage charges. Section 270A of the Act did not envisage imposing penalty if any addition is made on estimate basis. It was also submitted that estimated addition of 10% of sundry creditors had been made on account failure to supply the details of sundry creditors with confirmation letters, PAN and Aadhar and as such penalty u/s 270A of the Act was not applicable in this regard. The Ld. CIT(A) considered the written submissions of the assessee but held that since the assessee had failed to substantiate the miscellaneous expenses amounting to Rs.10,10,83,561/-, therefore, penalty notice had been issued and 50% of tax payable on under-reported income amounting to Rs.1,78,48,974/- had been imposed. He held that when a tax-payer withholds information about any source of income from their tax return, it results, the lower taxable amount and a smaller tax liability than what is owed. Further, making claims for expenses or deduction without the necessary documentation was also another form of misreporting and tax payers were obliged to present valid proof for any deductions or expenses claimed in their tax return. He quoted from the decisions of the Hon'ble Delhi High Court cited in the case of CIT Page 5 of 7 v Zoom Communication Pvt Ltd 40 DTR (Del) 249 and ITAT Ahmedabad in GSFS Ltd 30 SOT 570 (Ahd), both of which stated that the claim made by an assessee needed to be bonafide and correct in law and in respect of that claim which was not correct in law and also without any basis, the explanation offered was also not bonafide. Hence the Hon'ble Supreme Court decision in the case of Reliance Petro Products would not apply in such cases. Accordingly, the Ld. CIT(A) dismissed the appeal of the assessee.

3. The assessee is aggrieved with the said dismissal of its case and has accordingly come before us. On the appointed date of hearing, nobody appeared on behalf of the assessee. We are, therefore, deciding the case on the basis of the materials available before us. It is observed that the assessee is a Co- operative Society under the UP Government that has been constituted with the main object of Welfare and Employees of the State Government and charitable and other benevolent objects, which is for the benefit of such employees. It operated 161 depots for sale of FMCG and other daily usage goods to the State Government Employees on Vat exempted price/discounted price with the object of welfare. Every depot was an individual cost centre and maintained its own books of accounts and operates it’s own bank account. Depots provide trade account summary on monthly basis to head office, on the basis of which accounts are compiled and returns are filed. Due to the large spread of the society and the method of accounting that is employed, the society was handicapped in producing details before the Assessing Officer during the assessment proceedings, as all the details had to be called from the various depots, compiled and only thereafter could be submitted. As a result, the society has not made proper compliance before the Assessing Officer during Page 6 of 7 the course of assessment proceedings and in view of this lack of proper compliance, the Assessing Officer has made certain estimated additions. Thereafter, the penalty proceedings had been initiated, but the because of lack of compliance, and proper explanations, the AO was compelled to levy the penalty in the absence of any appeal filed against the assessment order. The submissions made by the assessee before the Ld. CIT(A) have been considered, and it is observed that many additions that have been made are on estimated basis without any scientific basis for adopting a particular estimate. To our mind the penalty cannot be levied on the basis of such estimated additions. We observe that the Ld. CIT(A), while dismissing the appeal of the assessee has not addressed the issue of whether penalty u/s 270A of the Act was leviable upon the assessee for estimated disallowances made by the Ld. AO, in view of the provisions of Section 270A(6) of the Act that were cited before him. We, therefore, deem it fit to restore the matter back to the file of the Assessing Officer, to afford the assessee an opportunity to present the facts before him so that the Assessing Officer may take a fresh decision on whether penalty u/s 270A of the Act is leviable upon the assessee for such estimated additions, in view of the express provisions of Section 270A(6) of the Act and to thereafter pass a fresh order in accordance with law.

Order pronounced in the open Court on 14/05/2025.