M/S GUJRANI & CO.,KOLKATA vs. ITO, WD-54(1), KOLKATA, KOLKATA

This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-21, Kolkata dated 16.03.2016, whereby he confirmed the penalty of Rs.35,298/- imposed by the Assessing Officer under section 271(1)(d) of the Income Tax Act, 1961.

The assessee in the present case is a partnership firm of practising Chartered Accountants. The return of income for the year under consideration was filed by it on 28.09.2009 declaring total income of Rs.6,35,470/-. In the Profit & Loss Account filed along with the said return, a sum of Rs.5,19,238/- was debited by the assessee on account of audit expenses. On verification of the said expenses, it was found by the Assessing Officer that the said expenses were incurred by the assessee on account of travelling and conveyance of its Audit Staff and Audit Clerks. According to the Assessing Officer, the said expenses were liable to be 2 Assessment Year: 2009-2010 taken into account while calculating the value of Fringe Benefit and since it was not done by the assessee, he required the assessee to offer its explanation in the matter. In reply, it was submitted by the assessee that the audit expenses were incurred for Articled Clerks, who were C.A. students receiving training and since there was no employer-employee relationship between the assessee and the said Articled Clerks, the audit expenses did not fall under the ambit of FBT. This explanation offered by the assessee was not found acceptable by the Assessing Officer keeping in view that it was specifically submitted by the assessee during the course of assessment proceedings that the audit expenses were incurred by its Audit Staff and Audit Clerks while conducting the Audit assignments at client’s office or work place. He, therefore, included the audit expenses of Rs.5,19,238/- while calculating the value of Fringe Benefit and also initiated penalty proceeding under section 271(1)(d). In reply to the show-cause notice issued by the Assessing Officer during the course of penalty proceedings, it was submitted by the assessee that there was no attempt made by it to furnish inaccurate particulars of Fringe Benefits, inasmuch as the expenses incurred on audit were properly and clearly shown in the Profit & Loss Account. This explanation of the assessee was not found acceptable by the Assessing Officer and he proceeded to impose penalty of Rs.35,298/- under section 271(1)(d) on account of FBT sought to be evaded by the assessee.

The penalty imposed by the Assessing Officer under section 271(1)(d) was challenged by the assessee in the appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), the following submission was filed by the assessee in writing in support of its case on the issue:- “For that the Ld. ITO ignored the fact that concerned audit expenses which were fully disclosed in the profit & loss account without furnishing of inaccurate particulars, in imposing penalty u/s.271)1)(d). Thus levying penalty u/s. 271(1)(d) on Audit Expenses on the grounds of furnishing of inaccurate particulars and concealment of FBT is against the spirit of law & unjustified.

The above submission filed by the assessee was not found acceptable by the ld. CIT(Appeals) and he proceeded to confirm the penalty imposed by the Assessing Officer under section 271(1)(d) for the following reasons given in paragraph no. 5 of his impugned order:- “5. I have duly considered the submission of the assessee in the light of the facts of the case and the judicial pronouncements relied upon. The assessee had debited expenses ofRs.5,19,238/- as audit expenses in the return. However, the AO found the same as fringe benefit to the employees after examination of accounts and the assessee had not disputed AO's decision. The issue in hands is to decide whether the assessee had any intention to conceal the facts or furnish inaccurate particulars. The assessee incurred the expenses for conveyance, food, remuneration etc. of its auditing article clerks and staff but debited the same against 'audit expenses'. So the assessee had indeed furnished inaccurate particulars of accounts in its return. The case laws referred by the assessee do not come in help of the assessee as those are distinguishable on facts as mentioned by the AO in the penalty order. This is not a case where the AO disallowed a portion of the fringe benefit expenses and initiated penalty. In this case, assessee had concealed the facts by claiming fringe benefit to the employees as audit expenses. So the AO was correct in his decision 5 Assessment Year: 2009-2010 in imposing penalty. In view of such, penalty levied by the AO is upheld”.

We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the audit expenses of Rs.5,19,238/- were claimed to be incurred by the assessee- company towards travelling and conveyance of the Articled Clerks, who were C.A. students receiving training from the assessee-firm. It was contended by the assessee during the course of assessment proceedings as well as during the course of penalty proceedings that there being no employer-employee relationship between the assessee-firm and the Articled Clerks, the audit expenses did not fall under the ambit of FBT. Although this claim of the assessee was not accepted by the Assessing Officer on the ground that it was specifically submitted by the assessee earlier that the audit expenses were incurred by its Audit staff and Audit Clerks without any reference to the Articled Clerks undergoing training with it, it is observed that nothing has been brought on record by the Assessing Officer to establish that the claim of the assessee was wrong and the audit expenses in question were incurred on the Audit staff, which did not include Articled Clerks undergoing training with the assessee-firm as per the stipulation of the ICAI. No doubt, the assessee- firm also failed to bring anything on record to support and substantiate its explanation but such failure, in our opinion, can justify the addition made by the Assessing Officer to the value of Fringe Benefit but not the imposition of penalty under section 271(1)(d), especially when the audit expenses were separately debited by the assessee-firm in its Profit & Loss Account and all the relevant details of the same were fully and truly furnished by the assessee during the course of assessment proceedings before the Assessing Officer. Keeping in view all these facts and circumstances of the case, we are of the view that it is not a case where the assessee can be said to have furnished inaccurate particulars of 6 Assessment Year: 2009-2010 Fringe Benefits to justify the imposition of penalty under section 271(1)(d). We, therefore, cancel the said penalty and allow this appeal of the assessee.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 17th day of January, 2018.