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Income Tax Appellate Tribunal, “C’’BENCH: BANGALORE
Before: SHRI N.V. VASUDEVANAND SHRI B.R. BASKARAN, ACCOUTANT MEMBER
order dated 20.5.2019 passed by Ld. CIT(A)-7, Bengaluru and it relates to the assessment year 2015-16. The assessee is aggrieved by the decision of Ld. CIT(A) in confirming the penalty levied by the AO u/s 271(1)(c) of the Income-tax Act,1961 ['the Act' for short].
ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR
None appeared on behalf of the assessee, even though the notice of hearing sent to the assessee by registered post has been duly acknowledged. Hence, we proceed to dispose of the appeal ex-parte, without presence of the assessee.
We heard Ld. D.R. and perused the record. The assessee is engaged in the business of power generation from wind mills and is also engaged in real estate activities. The assessment for the year under consideration was completed by the A.O. u/s 143(3) of the Act by making following additions:
a) Disallowance u/s 40(a)(ia) of the Act for non- deduction of tax at source – Rs.1,41,672/- b) Disallowance of TDS on purchase of land – Rs.1,22,951/- c) Disallowance of TDS on interest debited to profit & loss account – Rs.23,077/- d) Disallowance of interest expenses – Rs.7,34,747/-.
Before the A.O., the assessee agreed for all the above said four additions and hence the A.O. completed the assessment accordingly. Thereafter, the A.O. initiated the ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR penalty proceedings u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income.
In the penalty proceedings before the A.O., the assessee submitted that it has agreed for all the additions in order to avoid prolonged litigation and to buy peace.
Accordingly, the assessee prayed for cancellation of the penalty. The A.O. did not agree with the explanations given by the assessee. The AO took support of the decision rendered by Hon’ble Supreme Court in the case of MAK Data Pvt. Ltd. (358 ITR 593)(SC), wherein Hon’ble Supreme Court observed that the statute does not recognize defenses like ‘voluntary disclosure’, ‘buy peace’, ‘avoid litigation’, ‘amicable settlement’ etc. Thus, even voluntary surrender of income will not always necessarily rescue the assessee from the penalty provisions which are in the nature of remedy for loss of possible revenue.
Accordingly, the A.O. levied a penalty of Rs.5,53,000/- u/s 271(1)(c) of the Act for furnishing inaccurate particulars of the income. The Ld. CIT(A) confirmed the ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR penalty and hence the assessee has filed the appeal before us.
The Ld. D.R. placed his reliance on the decision rendered by Hon’ble Supreme Court in the case of MAK Data Pvt. Ltd. (supra) and also decision rendered by Hon’ble Delhi High Court in the case of Zoom Communication Pvt. Ltd. 191 Taxmann 179 (Delhi). He submitted that mere fact that the assessee has agreed for the addition will not absolve him from penalty. He further submitted that the assessee did not offer proper explanations against the levy of penalty before the AO.
Inviting our attention to the observations made Hon’ble Delhi High Court in the case of Zoom Communications P Ltd (supra), the Ld A.R submitted all the additions came to be agreed by the assessee only for the reason that the return of income was taken up for scrutiny and the additions were brought to the notice of the assessee by the A.O. Accordingly, he submitted that the penalty levied by the A.O. should be confirmed.
ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR
We heard Ld D.R and perused the record. We notice that the assessee has furnished detailed explanations before Ld CIT(A). With regard to the disallowance of Rs.1,41,672/- for non-deduction of TDS, the assessee has placed its reliance on the decision rendered by Hon’ble Gujarat High Court in the case of CIT vs. L.G.Choudhary (33 taxmann.com 156)(Guj.) We have gone through the said decision and we notice that the penalty levied by the AO u/s 271(1)(c) of the Act has been deleted by the Hon’ble Gujarat High Court with the following observations:- “3. We heard learned counsel, Ms. PauramiSheth for the appellant and senior counsel, Mr. Soparkar for the respondent. Learned counsel, Ms. Sheth has argued that the Tribunal had failed to see that the assessee had failed to deduct the TDS as per
law which was also deposited late and on such disallowance as has been confirmed by both CIT (Appeals) and ITAT and therefore, the imposition of penalty by Assessing Officer was just and proper. Per contra, learned senior counsel submitted that none of the elements of Section 271(1)(c) get attracted in case of ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR the respondent assessee. On due consideration of the submissions of both sides and on examining the orders of all the authorities, we find no reason to interfere in this appeal in as much as both the authorities namely CIT(A) and ITAT have rightly deleted the penalty observing that the disallowance was due to non-payment of TDS, which was at the most a technical default. There being nothing to indicate any concealment of the income or furnishing of inaccurate particulars of income by the assessee, the Assessing Officer was rightly not justified in levying the penalty.”
Since the disallowance is made u/s 40(a)(ia) of the Act for technical default, the Hon’ble Gujarat High Court held that the same would not result in any concealment of income or furnishing of inaccurate particulars of income.
Hence the penalty levied on the disallowance of Rs.1,41,672/- u/s 40(a)(ia) is liable to be deleted.
With regard to the disallowance of Rs.1,22,951/- relating to TDS on land purchase, we notice that the assessee has furnished following explanations before Ld CIT(A):-
ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR
“(ii)Disallowance of Purchase amount – Rs.1,22,951/-
The appellant encloses herewith the ledger abstract of land purchases account, which includes the cost of purchases of land less TDS and the TDS amounts are debited to the same land purchase account since the TDS also forms part of the cost of purchases. In the course of assessment proceedings, the A.R. of the appellant has mistakenly agreed for the disallowance of TDS from the land purchase account. In the view of this fact, there is no furnishing of inaccurate particulars and therefore, the levy of penalty is not warranted. The appellant further submits that there is no false claim of expenditures and the entire claim of expenditure in this account are genuine and allowable The appellant further submits that there is no observation by the assessing officer in the assessment order to prove by way of any material brought on record that the expenses claimed are bogus or at best to prove that the act of the appellant is contumacious. Hence, the penalty levied requires deletion.” It is submitted that the assessee did not claim the TDS amount deducted from consideration paid for land purchase as an expenditure at all, i.e., the said TDS amount was also capitalized in Land account. We notice that the assessee has substantiated its submissions by furnishing ledger account copy of land purchase account before Ld CIT(A). Accordingly, it was submitted that this addition was erroneously accepted by the assessee. Since the assessee did not claim TDS amount deduction from consideration paid for land purchase, the question of disallowing the same does not arise. Hence erroneous
ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR admission of the addition should not lead to either concealment of particulars of income or furnishing of inaccurate particulars of income. Accordingly penalty levied on this addition is also liable to be deleted.
The next addition relates to disallowance of interest of Rs.23,077/-. This amount pertained to interest payable on delayed payment of TDS. It was submitted that this interest expenditure was erroneously omitted to be disallowed while filing return of income and hence the assessee agreed for the disallowance during the course of assessment proceedings. Accordingly it was submitted that it was only an inadvertent omission committed while preparing return of income. The assessee has placed reliance on the decision rendered by Hon’ble Supreme Vs. CIT (2012) 348 ITR 206, wherein it was held that the assessee has committed an inadvertent and bonafide error and had not intended to or admitted to either conceal its income or furnish inaccurate particulars. Considering the ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR explanation given and also conduct of the assessee, we are of the view that the omission on the part of the assessee to disallow the interest paid on delayed remittance of TDS was an inadvertent error. Accordingly, following the decision rendered by Hon’ble Supreme Court in the case of Price Water House Coopers Pvt. Ltd. (supra), penalty u/s 271(1)(c) of the Act levied on this addition is liable to be deleted.
The next issue relates to disallowance of interest expenses of Rs.17.34 lakhs. The A.O. noticed that the assessee has borrowed funds and paid interest thereon.
He also noticed that the assessee has advanced interest free advances to its sister concern. Accordingly, the A.O. was of the view that the borrowed funds have been diverted to sister concerns and accordingly disallowed the interest expenditure. Before Ld. CIT(A), the assessee submitted that the A.O. has not brought on record any nexus between borrowed funds and the advance given to sister concern. Further, it was submitted that the ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR assessee has availed CC facility from City Union Bank for its working capital purposes. It was also submitted that the assessee was having adequate own funds and further the loans were given to sister concern was on account of commercial expediency. Accordingly, it was submitted that the A.O. has made an addition without examining all these aspects and hence this disallowance will not give rise to concealment of income or furnishing inaccurate particulars of income.
We notice that the A.O. has disallowed the interest expenditure only for the reason that the assessee has given loans to sister concerns. The assessee has also agreed for the addition apparently to buy peace from the department. However, it is submitted that the assessee is having own funds and further the loans were given to sister concerns was on account of commercial expediency.
It is also submitted that the cash credit loan taken from City Union Bank was used for business purposes only.
We notice that the AO did not discuss bring on record
ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR nexus between the borrowed funds and the loan given to the sister concerns. The purpose and availability of commercial expediency were also not examined, meaning thereby, the addition has been made on estimated basis.
The Hon’ble Supreme Court in the case of Reliance Petro Products 322 ITR 158 has held that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not attract penalty u/s 271(1)(c) of the Act. In this view of the matter, we are of the view that the penalty levied on this addition is also liable to be deleted.
In view of the foregoing discussions, we are of the view that the Ld. CIT(A) was not justified in confirming the penalty levied u/s 271(1)(c) of the Act. Accordingly, we set aside the order passed by Ld. CIT(A) and direct the A.O. to delete the penalty levied u/s 271(1)(c) of the Act for the year under consideration.
ITA 1672 OF 2019 MARIS CEMENTS PVT. LTD., HULIYAR
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 26.06.2020.