BUCON ENGINEERS & INFRASTRUCTURE PRIVATE LIMITED,MUMBAI vs. DCIT CENTRAL CIRCLE-8(1), MUMBAI

The present appeal has been preferred by the assessee against the order dated 16.02.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2013-14.

The only issue raised by the assessee is against the confirmation of penalty of Rs.63,520/- by Ld. CIT(A) as levied by the AO under section 271(1)(c) of the Act.

The assessee did not appear at the time of hearing nor any adjournment application was filed. We are therefore deciding

The facts in brief are that the assessment was framed under section 143(3) of the Act on 01.03.2016 at Rs.1,81,40,090/- as against the return of income of Rs.1,79,44,310/- thereby making an addition of Rs.1,95,777/- comprising various claims of the assessee in the profit and loss account such as late payment of charges of credit card payment of Rs.986/- penalty of interest of secured loans Rs.6,443/-, penalty on work’s contract tax Rs.1,16,000/- interest on M-Vat Rs.954/- interest on professional tax of Rs.505/- and interest on service tax Rs.70,889/-. The penalty proceedings were initiated by issuing notice under section 274 read with section 271(1)(c) of the Act on 01.03.2016 and assessee was asked to tax as to why the penalty should not be imposed which was replied by the assessee vide letter dated 12.08.2016 and 11.08.2016 by submitting that the disallowances were mainly on account of interest which were allowable expenditures. However, in view of the petty nature of addition the quantum appeal was not filed. The assessee submitted that no facts were concealed nor any inaccurate particulars of income were furnished. The factual position with regard to these claims of interest was duly shown and reflected in the books of accounts. The explanation of the assessee did not find favour with the AO and the AO concluded that the assessee has committed to default within the meaning of section 271(1)(c) of the Act read with explanation 1 and accordingly levied a penalty of Rs.63,520/- being 100% of the tax sought to be evaded.

The Ld. CIT(A) upheld the order imposing penalty by holding that the acceptance of the addition and non filing of appeal will not exonerate the assessee from the penal provision as envisaged under section 271(1)(c) of the Act and thereafter following various decisions such as CIT vs. Zoom Communication Pvt. Ltd. (2010) 327 ITR 510 (Del – HC) & Union of India vs. Dharmendra Textile Processors (2007) 295 ITR 244 (SC) held that the assessee has made incorrect claim for which it had offered no plausible explanation and thus explanation 1 to section 271(1)(c) would come into play and thus justified the addition.

After hearing the Ld. D.R. and perusing the material on record, we observe that the assessee has claimed interest of Rs.1,95,777/- on various counts as stated hereinabove. The assessee has not challenged the addition due to the small nature of the addition and thus there is no appeal filed before the higher authorities against this addition. The Ld. CIT(A) sustained the addition only on the ground that assessee has made claim in the books of accounts for which it had not offered any explanation which is bonafide and thus justified the levy of penalty. However, after perusal of the facts on record, we observe that assessee has made full disclosure of the claim of interest in the books of accounts and in the said case the penalty is not imposable under the Act. We further observe that that the assessee has offered sufficient explanation in support of his claim. The case of the assessee is squarely covered by the decision of the Apex Court in the case of CIT vs. Reliance Petro Product (2010) 322 ITR 158 (SC) in which the Hon’ble Supreme Court has held that even if the assessee has 4 M/s. Bucon Engineers & Infrastructure Pvt. Ltd. made incorrect claim in the books of accounts, which may be wrong or not acceptable by the Revenue would not itself attract the penalty under section 271(1)(c) of the Act. In the present case also the assessee has made a claim which is duly reflected in the books of the accounts and mere disallowance by the revenue would not attract penal provisions .Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the penalty.

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