MARIS CEMENTS PRIVATE LIMITED,HULIYAR vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1, TUMKUR

PERB.R. BASKARAN, ACCOUNTANT MEMBER:

The appeal filed by the assessee is directed against

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

Page 2 of 12

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.

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/-.

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

Page 3 of 12

penalty proceedings u/s 271(1)(c) of the Act for furnishing

of inaccurate particulars of income.

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

Page 4 of 12

penalty and hence the assessee has filed the appeal before

us.

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

Page 5 of 12

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

Page 6 of 12

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.

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

Page 7 of 12

“(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

Page 8 of 12

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.

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

Court in the case of Price Water House Coopers Pvt. Ltd.

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

Page 9 of 12

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.

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

Page 10 of 12

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.

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

Page 11 of 12

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.

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

Page 12 of 12

allowed.

Order pronounced in the open court on 26.06.2020.

Sd/- Sd/- (N.V. Vasudevan) (B.R. Baskaran) Vice President Accountant Member

Bangalore, Dated 26th June, 2020. VG/SPS

Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore.