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Facts
For AY 2016-17, the AO made additions, including Rs. 2,25,148/- under Section 40A(3). The ITAT upheld this disallowance, after which the AO levied a penalty of Rs. 1,72,227/- under Section 271(1)(c), which was confirmed by the Ld. CIT(A). The assessee appealed this penalty order before the ITAT.
Held
The Tribunal held that the assessee should not be subjected to penalty under Section 271(1)(c) as disallowances made under deeming provisions, such as Section 40A(3), do not automatically imply concealment or contumacious conduct. Citing precedents from the Madras High Court and the Apex Court, the Tribunal deleted the penalty.
Key Issues
Whether penalty under Section 271(1)(c) is leviable for disallowances made under the deeming provisions of Section 40A(3) of the Income Tax Act.
Sections Cited
271(1)(c), 40A(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’ : NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI SUDHIR PAREEK
Order
: 03.05.2024 ORDER
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal by the assessee is directed against the order of the ld. CIT (Appeals)/National Faceless Appeal Centre (NFAC) dated 30.12.2023 for the assessment year 2016-17.
Grounds of appeal
taken by the assessee read as under :- “1. That the order as framed by the Ld. CIT (A) is against law & facts.
2. Because ld. CIT (A) has erred while confirming penalty U/Sec 271(1)(c) on a mere disallowance of cash business expenses of Rs.2,25,148/- by invoking provisions of Sec 40(A)(3) of the Income Tax Act.
3. Because even otherwise mere disallowance of expenses is not concealment as per decision of CIT vs. Reliance Petro Products 322 ITR 158 (SC).
4. Because addition made U/S 40(A)(3) are deeming provision and it may not be extended to the penalty proceedings. 5. Because even otherwise here is no adverse finding whatsoever regarding disallowance of business expenses incurred by the ‘A’ except invoking provision sec 40(A)(3) of the Income Tax Act while making addition of cash expenses amounting to Rs.225148/-.” 3. In this case, originally the AO made additions as under :- (i) Addition u/s 14A Rs.16,65,333/- (ii) Addition u/s 40A(3) Rs. 2,25,148/- The matter went upto ITAT, New Delhi and ITAT upheld the disallowance on account of addition u/s 40A(3) of Rs.2,25,148/-. AO levied the penalty under section 271(1)(c) of the Income-tax Act, 1961 (for short ‘the Act’) amounting to Rs.1,72,227/-. Ld. CIT (A) confirmed the penalty order. 4. Against this order, assessee is in appeal before us. We have heard both the parties and perused the records. 5. Ld. Counsel for the assessee pleaded that disallowance has been done in this case under deeming provisions and no penalty is liable to be levied on this account. In this regard, he referred to the decision of Hon’ble Madras High Court in the case of CIT vs. MSK Constructions (P) Ltd. (2008) 296 ITR 18 (Madras) for the following proposition :- “In the instant case, the Tribunal after going through the records observed that the disallowance of interest under section 43B of the Act does not amount to concealment of income and that when there is no tax payable, penalty could not be levied. We, therefore, find no illegality or infirmity in the order of the Tribunal in deleting the penalty. Hence, finding no substantial question of law arising for our consideration, these appeals are dismissed. No costs. Consequently, MP. No.1 of 2007 is closed.”
Furthermore, ld. Counsel for the assessee submitted that reliance is also placed on the decision of Hon’ble Apex Court in the case of CIT vs. Reliance Petro Products 322 ITR 158 (SC).
Per contra, ld. DR for the Revenue relied upon the orders of the authorities below.
Upon careful consideration, we find that in this case, assessee does not deserve to be visited with the rigours of penalty under section 271(1)(c) of the Act. The case laws cited above duly supports the case of the assessee. Furthermore, the conduct of the assessee is not contumacious. Accordingly, relying on the precedent as above, we delete the penalty.
In the result, this appeal filed by the assessee is allowed. Order pronounced in the open court on this 3rd day of May, 2024.