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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI P. M. JAGTAP & MS. SUCHITRA KAMBLE
आदेश/O R D E R PER P. M. JAGTAP, VICE-PRESIDENT :
This appeal filed by the assessee is directed against the order of learned Commissioner of Income-Tax (Appeals), Gandhinagar, Ahmedabad [“CIT(A)” in short] dated 25.07.2014 read with order of rectification under Section 154 of the learned CIT(A) dated 17.10.2014 whereby he sustained the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income-tax Act, 1961 (“the Act” in short) to the extent of Rs.8,26,710/-.
At the outset, it is noted that there is a delay of 1271 days on the part of the assessee in filing the appeal before the Tribunal. In this regard, the assessee has filed an application seeking condonation of the said delay on the following grounds:-
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Assessment Order was passed under section 144 of the Act on 21.01.2013 determining total income at Rs.1,59,41,190/-. The Assessing Officer invoked penalty proceedings under section 271(1)(c) of the Act and imposed penalty vide order dated 26.07.2013. Both the quantum addition as well as penalty imposed upon the assessee was challenged before the ld. CIT(A). The ld. CIT(A) decided the appeal of the assessee against the order passed under section 271(1)(c) on 25.07.2014. The assessee filed rectification application u/s 154 to CIT(A) against above order dated 25.07.2014 on account of factual mistakes apparent from record. In consequence thereof, CIT(A) passed order u/s 154 of the Act on 17.10.2014. The assessee was aggrieved by the order dated 24.07.2014 vide which the penalty was confirmed and intended to file the appeal against the above order, but inadvertently filed appeal against CIT(A) order dated 17.10.2014. When the appeal against CIT(A) order dated 17.10.2014 came up for hearing before the Income Tax Appellate Tribunal Ahmedabad “A” Bench, Ahmedabad in ITA No.3442/Ahd/2014, the inadvertent mistake came to the notice of Bench. The ITAT vide order dated 4th April, 2018 allowed/directed the assessee to file a separate appeal against CIT(A) order dated 24.07.2014 with application for condonation of delay.
Keeping in view the reason given by the assessee as above, we are satisfied that there was a sufficient cause for the delay of 1271 days on the part of the assessee in filing the appeal before the learned Tribunal and even learned DR has not been able to raise any material contention to rebut or controvert this position. The said delay is accordingly condoned and this appeal of the assessee is being disposed of on merit.
The assessee, in the present case, is a company which is engaged in the business of providing IT-enabled services. The return of income for the year under consideration was filed by the assessee-company on 28.03.2012 declaring total income at NIL. The said return was selected for scrutiny and a notice under Section 143(2) of the Act was issued by the Assessing Officer to the assessee on 29.08.2011. The said notice issued by the Assessing Officer under Section 143(2) of the Act as well as subsequent notices issued under Section 143(1) of the Act, fixing the case of the assessee from time to time, however remained uncomplied with by the assessee. The Assessing Officer, therefore, was left with no option, but to complete the assessment ex-parte
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under Section 144 of the Act to the best of his judgement on the basis of material available on record. In the assessment so completed vide order dated 21.01.2013, the total income of the assessee was determined by the Assessing Officer at Rs.1,59,41,190/-, after making the disallowance of Rs.69,23,010/- being the 25% of the expenses claimed by the assessee on account of unverifiable element involved in the said expenses, TDS compliance etc.. The Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Act; and, since there was no satisfactory compliance on the part of the assessee to the notices issued by him during the course of said proceedings, the Assessing Officer proceeded to impose the penalty of Rs.55,00,000/- under Section 271(1)(c) of the Act vide order dated 26.07.2013.
Against the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act, an appeal was preferred by the assessee before the learned CIT(A) which was dismissed by the learned CIT(A) vide order dated 25.07.2014 thereby confirming the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act. The learned CIT(A) held that no details were furnished by the assessee either during the course of quantum proceedings or during the course of penalty proceedings to support and substantiate the expenses claimed by it under various heads. He noted that the issue relating to the disallowance of 25% of the expenses was not even pressed by the assessee during the course of quantum appellate proceedings before him. He accordingly confirmed the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act by relying on the decision of Allahabad bench of ITAT in the case of R.K. Brothers (2003) 87 ITD 649 (All) wherein it was held that when concealment of income was apparent from record, penalty could be imposed even on basis of estimate of income. Thereafter, assessee moved an application for rectification u/s. 154 in the
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quantum proceedings and while allowing the same vide order dated 17.10.2014, the ld. CIT(A) granted certain relief to the assessee. Consequently, the penalty imposed on the assessee u/s. 271(1)(c) was reduced to Rs.8,26,709/-. Still aggrieved, the assessee has preferred this appeal before the Tribunal.
The learned Counsel for the assessee submitted that penalty under Section 271(1)(c) of the Act has been imposed in the case of the assessee on the addition made on account of disallowance of expenses made on estimated basis. He submitted that even though the issue relating to disallowance of expenses was not seriously contested by the assessee in the appeal filed during the course of quantum proceedings, a rectification application under Section 154 of the Act was filed and as a result of allowing the said application, the total income of Rs.1,59,41,190/-, as assessed by the Assessing Officer, was reduced to a loss of Rs.(-) 1,01,20,265/-. He contended that the entire disallowance of 25% of the expenses was made by the Assessing Officer on estimation basis without bringing any adverse material on record to show that there was any concealment on the part of the assessee of the particulars of its income or furnishing of inaccurate particulars of its income. He relied on the decision of Hon’ble Gujarat High Court in the case of Subhash Trading Co., 86 Taxmann.com 30, to contend that the penalty under Section 271(1)(c) of the Act cannot be imposed in the absence of any evidence to conclusively show that there was concealment of income. He also relied on the decision of Hon’ble Gujarat High Court in the case of Valimkbhai H. Patel, 280 ITR 487 (Guj.), to contend that when the ad- hoc disallowance/addition is made, the penalty under Section 271(1)(c) is not attracted.
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The learned Departmental Representative, on the other hand, submitted that there was no satisfactory compliance on the part of the assessee during the course of assessment proceedings before the Assessing Officer as well as during the course of appellate proceedings before learned CIT(A); and, in the absence of anything brought on record by the assessee to support and substantiate its claim for the expenses made under various heads, the Assessing Officer had no option but to make a disallowance out of the said expenses on ad-hoc basis. He contended that the assessee thus could not prove the genuineness of the various expenses claimed by it and the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act thus was rightly confirmed by the learned CIT(A) by relying on the decision of Allahabad bench of the ITAT in the case of R.K. Brothers (supra).
We have heard the rival contentions and also perused the material available on record. The issue for consideration before us is whether the penalty imposed under Section 271(1)(c) of the Act can be sustained for the disallowance made on account of various expenses on ad-hoc basis. As per the provisions of Section 271(1)(c) of the Act, the assessee is liable for penalty under Section 271(1)(c) of the Act if he is found to have concealed particulars of its income or furnished inaccurate particulars of its income. In this regard, it would be useful to refer to the law laid down by various High Courts as well as the Co-ordinate Benches of this Tribunal on the issue of levy of penalty in the case of ad-hoc addition/disallowance. The propositions laid down in this context in the judicial pronouncements are summarized below:-
Their Lordships of Punjab & Haryana High Court in Hari Gopal Vs. CIT [258 ITR 85 (P&H)] held as under:-
"In order to attract clause (c) of section 271(1)(c) of the Income-tax Act, 1961, it is necessary that there must be concealment by the assessee of the particulars of his income or furnishing of inaccurate particulars of such
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income. The provisions of section 271(1)(c) of the Act are not attracted to cases where the income of an assessee is assessed on estimate basis and additions are made therein"
The Hon'ble High Court further in Hari Gopal Vs. C IT (supra) held as under:-
"Additions in his income were made, as already observed, on estimate basis and that by itself does not lead to the conclusion that the assessee either concealed the particulars of his income or furnished inaccurate particulars of such income. There has to be a positive act of concealment on his part and the onus to prove this is on the Department. We are also of the considered view that the Tribunal grossly erred in law in relying on Explanation I(B) to section 271(1)(c) of the Act to raise a presumption against the assessee."
The Hon'ble Punjab & Haryana High Court in CIT Vs. Sangrur Vanaspati Mills Ltd, 303 ITR 53 (P&H) held as under:-
"In order to attract clause (c) of section 271(1) of the Income-tax Act, 1961, it is necessary that there must be concealment by the assessee of the particulars of his income or furnishing of inaccurate particulars of such income. The provisions of section 271(1)(c) of the Act are not attracted to cases where the income of an assessee is assessed on estimate basis and additions are made therein. When the additions have been made on the basis of estimate and not on account of any concrete evidence of concealment, then the penalty is not leviable."
It may be useful to refer to the decision of Mumbai Tribunal in the case of DCIT v M/s Marksans Pharma in ITA No.7278/Mum/2016. In this case, assessee which was engaged in the business of Film Making and in its profit & loss account, claimed a sum of Rs. 22,05,138/- as technical and professional expenses and Rs. 3,00,000/- as publicity expenses. The AO noted that on these payments, the assessee has not deducted TDS as required and accordingly he made disallowance u/s. 40(a)(ia). He further noticed that assessee has claimed various film production expenses and administrative expenses which were not open to full verification, and accordingly he made ad-hoc disallowance @ of 20%, aggregating to Rs.9,83,145/-. In the first
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appeal, it appears that all these disallowances were not pressed before the Ld. CIT(A) by the assessee. The AO after invoking the provisions of Explanation 1 to section 271(1)(c), levied the penalty on these disallowances. Even the Ld. CIT(A) too has confirmed the levy of penalty on the aforesaid disallowance, firstly on the ground that assessee has failed to discharge its onus during the course of assessment proceedings as well as during the course of penalty proceedings; secondly the assessee has failed to comply with the statutory requirements of deducting TDS on the payments which has been claimed as expenses; and lastly the assessee's claim was not legally sustainable in law.
The Hon’ble ITAT while vacating the penalty proceedings observed as under:-
“We have heard the rival submissions of the parties and also carefully perused the materials placed on record. So far as levy of penalty on disallowance of Rs. 9,83,145/- is concerned, it is seen that the AO has made adhoc disallowance at the rate of 20% of the various expenses without pointing out any specific expenses being in the nature of non business purpose or for personal use. If the accounts have been audited, then the normal presumption is that the expenses are verifiable vis-a-vis the documents maintained by the assessee. Even though disallowances have been made in the quantum proceedings, due to non verifiability of expenses through corroborative eevidences and the same has not been challenged, however this does not lead to any inference that assessee is liable for levy of penalty for either furnishing of any inaccurate particulars or for concealment of particulars of income. The disallowance is purely based on adhoc basis, dehors any adverse material on record, therefore, no penalty is warranted u/s 271(1)(c) on adhoc disallowance of the expenses claimed by the assessee in the profit & loss account.”
Similar view has laid down in Chandigarh ITAT decision in the case of M/s Boparai (P) Ltd in ITA No. 1013/Chd/2010.
The facts of this case are that the assessee had furnished return of income showing ‘nil’ income. During the year under consideration, there was a fall in G.P. rate in comparison to the GP rate shown in the
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preceding year. The Assessing Officer applying the GP rate 14.96% declared by the assessee in earlier assessment year as compared to 11.42% shown during the year under appeal, made an addition of Rs.1,75,000/-. The Assessing Officer also from the perusal of the details noted that vouchers of machinery repaired, labour welfare, sales promotion, telephone and car running and maintenance expenses were not properly vouched and made a disallowance of 25% of these expenses on ad-hoc basis. The AO also initiated penalty proceedings u/s 271(1)(c) of the Act. The Hon’ble ITAT while quashing the penalty proceedings observed as under:-
“In such cases where the income of the assessee has been assessed on estimate basis and addition has been made on the basis of estimate and not on account of any concrete evidence of concealment being found, there is no merit in the levy of penalty for concealment u/s 271(1)(c) of the Act.”
The Hon’ble Mumbai Tribunal in the case of Asstt. Commissioner of Income Tax v. Remi Electrotechnik Ltd in ITA no.6376/Mum/2019, while quashing penalty proceedings on the basis of disallowances on estimate basis, observed as under:-
“As it transpires from the record available before us that the Assessing Officer levied penalty under section 271(1)(c) of the Act on estimate basis without any evidence on record with regard to concealment of income. Penalty under section 271(1)(c) of the Act is leviable to be imposed only where the assessee has concealed its particulars of income or furnished inaccurate particulars. Action of making addition on ad–hoc basis does not result into imposition of penalty u/s 271(1)(c) of the Act and hence cannot be termed as either concealment or furnishing of inaccurate particulars of income…..” [[[
The Hon’ble Mumbai Tribunal in the case of Anita L. Ghadge v D.C.I.T. in ITA No.5959 & 5960/MUM/2014, while vacating penalty proceedings initiated on account of disallowance of 70% of commission and
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30% of other expenses on an estimate basis for not maintaining proper accounts, observed as under:-
“We have heard the rival submissions, perused the orders of the Authorities below. On a perusal of the Assessment Order and the Ld.CIT(A) order, we find that the Assessing Officer disallowed the commission as well as the expenses on an estimate basis which was further reduced by the Ld.CIT(A). None of the authorities below have conclusively proved that there is neither concealment of income nor furnishing of inaccurate particulars by the assessee. It is only a mere disallowance of expenses on estimates on an adhoc basis. Penalty U/s.271(1)(c) of the Act is not attracted when there is an adhoc estimation of disallowance of expenses. Hence, we direct the Assessing Officer to delete the penalty levied U/s. 271(1)(c) of the Act. This ground is allowed.”
In the present case, it is observed that the disallowance of 25% of the various expenses claimed by the assessee was made by the Assessing Officer on estimated basis without giving any basis whatsoever for such estimate. The only reason given by the Assessing Officer for making such disallowance on estimate or on ad-hoc basis was the unverifiable element involved in the said expenses, compliance of TDS provisions etc. It is noted that while making such disallowance, the Assessing Officer has not pointed out even a single instance of any bogus expenditure claimed by the assessee. He has also not brought any adverse material on record to establish that the assessee was guilty of concealing of particulars of its income or furnishing inaccurate particulars of such income. Keeping in view all these facts of the case as well as the legal position emanating from the various judicial pronouncements discussed above, we are of the view that the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act and sustained by the learned CIT(A) in respect of additions made on estimated basis on account of disallowance of expenses on ad-hoc basis is not sustainable; and, cancelling the same, we allow this appeal of the assessee.
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In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 2nd February 2022 at Ahmedabad.
Sd/- Sd/- (SUCHITRA KAMBLE) (P. M. JAGTAP) JUDICIAL MEMBER VICE PRESIDENT
Ahmedabad: Dated 02/02/2022 *Bt आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु� अपील 4. ( ) / The CIT(A)- िवभागीय �ितिनिध अिधकरण अपीलीय आयकर 5. , /DR,ITAT, Ahmedabad, गाड� फाईल /Guard file. 6. आदेशानुसार/ BY ORDER, TRUE COPY सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण ITAT, Ahmedabad