ASS CIT 8(3)(2), MUMBAI vs. WIRE AND WIRLESS TISAI SATELLITE LTD, MUMBAI

1 ITA 09/Mum/2016

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI

Before Shri Joginder Singh(JUDICIAL MEMBER) AND Shri G Manjunatha (ACCOUNTANT MEMBER)

I.T.A No.09/Mum/2016 (Assessment year: 2011-12)

ACIT-8(3)(2), Mumbai vs M/s Wire and Wireless Tisai Satellite Ltd, 4th Floor, Madhu Industrial Estate, P. Budhkar Marg, Worli, Mumbai-13 PAN : AAACW7197D APPELLANT RESPONDENT

Appellant by Shri M.V. Rajguru Respondent by Shri Mitesh J Thakkar

Date of hearing 26-04-2018 Date of pronouncement 13-06-2018 O R D E R Per G Manjunatha, AM : This appeal filed by the revenue is directed against the order of the

CIT(A)-14, Mumbai dated 23-10-2015 and it pertains to AY 2011-12.

The revenue has raised the following grounds of appeal:-

(i) The Learned CIT(A) has erred on facts and in law in cancelling the penalty levied by A O of Rs 1,79,93,261/-/-, under section 271(l)(c) r.w. Explanation 1A of the Income Tax Act, without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer. (ii) The learned CIT(A) erred in cancelling penalty levied u/s 271(l)(c) r.w. Explanation 1A of the Act on the disallowance u/s 40(a)(ia) of the Act, without appreciating that the impugned penalty imposed was on account of default hi deduction of tax at source on management fees paid and that the assessee had filed inaccurate

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particulars which had the effect of reducing its tax liability.

engaged in the business of cable network services, filed its return of

income for AY 2011-12 on 29-09-2011 declaring total loss of

Rs.2,44,43,963. The assessment has been completed u/s 143(3) on 19-

02-2014 determining the total income at Rs.2,97,24,120 wherein

addition has been made towards management fees paid u/s 40(a)(ia) for

failure to deduct tax u/s 194J of the Act and also non reconciliation of

AIR mismatch amounting to Rs.1,63,366.

and issued show cause notice u/s 274 r.w.s. 271(1)(c) and called upon

the assessee to explain as to penalty shall not be levied for furnishing

inaccurate particulars of income in respect of disallowance u/s 40(a)(ia)

towards management fees paid for failure to deduct tax at source u/s

194J as the same has been reported by the tax auditor in his tax audit

report column 17 of form 3CD and also the assessee has filed

necessary particulars about the payment in the return of income filed u/s

139(1). The assessee further submitted that mere disallowance of

certain expenses would not lead to an inference that the assessee has

furnished inaccurate particulars of income which comes within the

deeming provisions of Explanation (1A) of section 271(1)(c). The

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assessee further submitted that the moment the AO has pointed out the

lapses in compliance with TDS provisions on the basis of tax audit

report, the assessee has accepted such lapses and said that although it

has accepted the report of the tax auditor by omission, the same has not

been added back in the statement of total income which cannot be

considered as deliberate attempt to furnish inaccurate particulars of

income so as to evade payment of taxes. The AO, after considering

submissions of the assessee observed that as per Explanation (1A) of

section 271(1)(c), any person, who failed to offer valid explanation, the

amount added directly on indirectly to the total income of an assessee is

deemed to represent the income of which particulars of income is

concealed by the assessee. Since the assessee has not offered any

valid explanation for the penalty valid explanation for the default, the AO

opined that the assessee has deliberately concealed particulars of

income by furnishing inaccurate particulars of income by furnishing

inaccurate particulars with an intention to evade tax liability and hence it

is a fit case for levy of penalty u/s 271(1)(c) and accordingly levied

penalty of Rs.1,79,93,261 which is 100% of tax sought to be evaded.

before the CIT(A). Before the CIT(A), assessee has reiterated its

submissions made before the AO. The assessee further submitted that

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non filing of any explanation or non filing of appeal against addition

made by the AO does not mean that the assessee is guilty of either

furnishing inaccurate particulars of income or concealed particular of

income with an intention to evade payment of taxes. The assessee

further submitted that the AO has failed to appreciate the fact that the

tax audit report was filed along with the return and tht it unequivocally

stated that the management fees and provision for payment of gratuity

was not allowable u/s 40(a)(ia) and 40A(7) of the Act respectively

indicate that the assessee has made a computation error in its return of

income. Therefore, no adverse inference can be drawn against the

assessee merely for the reason that there is an addition to the returned

income which attracts deeming provision of Explanation (1A) to section

271(1)(c) of the Act. In this regard relied upon the decision of Hon’ble

Supreme Court in the case of Pricewater Cooper Pvt Ltd vs CIT 348 ITR

306 (SC). The Ld.CIT(A), after considering relevant submissions of the

assessee and also by following the decision of ITAT, Mumbai Bench “E”

in the case of Satyajeet Movies Pvt Ltd vs ACIT in ITA

No.6036/Mum/2011 dated 21-02-2014 held that no penalty can be levied

u/s 271(1)(c) if the assessee has filed necessary details alongwith return

of income in respect of disallowance made u/s 40(a)(ia). The CIT(A)

further observed tht once genuineness of the expenses and quantum of

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payment have not been doubted and disallowance has been made on

the ground of technical or venial breach, for non deduction of tax at

source, would not automatically leads to imposition of penalty u/s

271(1)(c); therefore, opined that no penalty can be levied for addition of

Rs.5 crores made u/s 40(a)(ia) of the Act for failure to deduct TDS.

However, confirmed penalty levied by the AO in respect of disallowance

in respect of addition made towards non re-conciliation of AIR mismatch

and addition towards gratuity provision u/s 40A(7) of the Act. The

relevant portion of the order of the CIT(A) is extracted below:-

“3.1 During the appellate proceedings, lhc Ld.AR submitted that as regards penalty imposed against the additions made u/s.40(a)(ia) of the Act, the same is not leviable in view of (he judgement of Hon'ble ITAT 'R* Bench, Mumbai in the case of Satyajeet Movies Pvt. Ltd. vs. ACIT, ITA No.6306/Mum/2011, AY.2005-06 dated 21/02/2014 and also enclosed a copy of the judgement. I have gone through the same. It is noted that the Hon'ble ITAT, Mumbai, against the additions made u/s.40(a)(ia) of the Act, observed that the genuineness of these expenses and quantum of payment have not been doubted and disallowance has been made only on the technical default on non-deduction of TDS for which there is separate provisions for levy of interest and penalty, under the Act. Penalty u/s.271(l)(c) can be levied only, if the assessee has concealed particulars of income or furnished inaccurate particulars of income. Once such payment have not been doubted, such penalty cannot be levied u/s.271(l)(c) of the Act. The fact of this case is identical in which the quantum of the payment or the "t genuineness of the payment have not been doubted and addition has been made on technical default of TDS, therefore in the light of the decision given by the Hon'ble ITAT (Supra), the penalty levied against the addition of Rs.5.4 crores u/s.40(a)(ia) of the Act, is cancelled. 3.2 During the appellate proceedings, the Ld.AR, has submitted that lenient view can be taken against the addition made on account of discrepancies in the AIR statement, however, no reconciliation statement could be filed, even during the proceedings, therefore the contention of the Ld.AR is not acceptable and penalty against this addition is confirmed as evidently there is an instance of filing inaccurate particulars of income resulting into concealment of income. Similarly, no submission is made regarding the additions made on account of 40(a)(7) of the Act. As per the copy of the assessment order filed during the course of appellate proceedings, it is noted that the auditor has noted that the payment of gratuity amounting to Rs.3715/- is not allowable u/s.40(a)(7) of the Act. However, despite this, the assessee has not added back this amount in the computation of income. In view of the

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facts of the case, I am of the opinion, that penalty u/s.27 1( l)(c) of the Act is leviable against the additions made u/s.40(a)(7) of the Act. also and it is hereby confirmed.”

penalty levied u/s 271(1)(c) r.w.s. Explanation (1A) of the Act without

properly appreciating the fact brought out by the AO that the assessee

has failed to offer any explanation for not adding disallowance of

management fees quantified by the auditor in his tax audit report u/s

40(a)(ia) of the Act even though such payment is not actually deductible.

The Ld.DR further submitted that the act on the part of the assessee not

to take cognizance of the auditors’ comments deserves to be penalised

for the reason that if scrutiny proceedings are not taken place, the same

would have remained distant mystery and the revenue would not have

detected the violation. Therefore, the AO has rightly levied penalty u/s

271(1)(c) for addition towards disallowance of expenses u/s 40(a)(a) and

his order should be upheld.

penalty can be levied u/s 271(1)(c) for a technical or venial breach of non

deduction of tax at source when assessee has furnished complete

details of payment in return of income and also the auditor has qualified

such disallowance in his tax audit report. At the best, the mistake

committed by the assessee can be considered as a human error for

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which rigors of provisions of section 271(1)(c) cannot be invoked. The

CIT(A), after considering relevant submissions has rightly deleted

penalty levied u/s 271(1)(c) and his order should be upheld.

on record. The factual matrix of the case which lead to levy of penalty

u/s 271(1)(c) are that during the financial year relevant to AY 2011-12,

the assessee has paid management fees to Wire and Wireless India Ltd

and M/s Tisai Satellite Services amounting to Rs.5.4 crores without

deduction of tax at source u/s 194J of the Income-tax Act, 1961. The tax

auditor has quantified defaults in deduction of TDS u/s 194J and issued

a qualified report by stating that management fees paid without

deduction of tax at source is not deductible u/s 40(a)(ia) of the Act. The

AO levied penalty u/s 271(1)(c) on the ground that the assessee has not

offered any valid explanation for the default committed in compliance of

TDS provisions. The AO further observed that as per explanation (1A) of

section 271(1)(c) any person, who fails to offer valid explanation in

respect of any addition, the amount added directly or indirectly to the

total income of an assessee is deemed to represent the income of which

particulars of income is concealed by the assessee. It is the contention

of the assessee that it has neither concealed particulars of income nor

furnished inaccurate particulars of income which is evident from the facts

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gathered by the AO in his order that the tax auditor has reported non

deduction of TDS on management fees and the tax auditor has

mentioned in his tax audit report about inadmissibility of payment made

for failure to deduct TDS. The assessee contended that the assessee is

not guilty of furnishing of inaccurate particulars of income with an attempt

to deliberately concealing particulars of income.

assessee for the reason that mere disallowance of certain expenses

during assessment proceedings does not attract penalty provisions u/s

271(1)(c) if such disallowance is made for technical of venial breach of

TDS provisions. The Hon’ble Supreme Court in the case of Pricewater

Cooper Pvt Ltd vs CIT (supra) held that penalty for concealment cannot

be levied in case of bona fide / inadvertent / human error. The Hon’ble

Gujarat High Court in the case of CIT vs L.G. Choudhari (2013) 33

Taxman.com held that where the expenditure is disallowed due to failure

to deduct TDS or late deposit of TDS, no penalty is leviable u/s 271(1)(c)

on the ground that disallowance shall, at the most, a technical default,

there being nothing to indicate any concealment of income. The co-

ordinate bench of ITAT, MumbaI Bench “E” in the case of Satyajeet

Movies Pvt Ltd (supra) held that no penalty can be levied u/s 271(1)(c)

for any addition made u/s 40(a)(ia) for failure to deduct TDS, once such

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payment has not been doubted. At the best, the default committed by the assessee can be termed it as technical or venial breach for which rigors of penalty provisions cannot be invoked. The Ld.CIT(A), after

considering relevant submissions, has rightly deleted penalty levied by the AO in respect of addition made u/s 40(a)(ia) of the Act. The revenue failed to bring on record any contrary decision to counter the findings of facts recorded by the Ld.CIT(A). Hence, we are inclined to uphold the

findings of CIT(A) and dismiss appeal filed by the revenue. 9. In the result, appeal filed by the revenue is dismissed.

Order pronounced in the open court on 13th June, 2018.

Sd/- sd/- (Joginder Singh) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 13th June, 2018 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order Sr.PS, ITAT, Mumbai