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Facts
The assessee, a private limited company, engaged in the granite business, accepted additions made during the scrutiny assessment under sections 14A, 36(1)(iii), and 40(a)(ia) of the Income Tax Act, 1961. Subsequently, a penalty was levied under section 270A for under-reporting income, which was confirmed by the CIT(A).
Held
The Tribunal observed that the assessee had surplus funds for the disallowance under section 36(1)(iii) and had acted in good faith regarding TDS for section 40(a)(i). The Tribunal also noted that the application for immunity under section 270AA was a procedural compliance and the assessee had substantially complied with tax payments. The penalty was deemed not tenable in law.
Key Issues
Whether the penalty levied under section 270A for alleged under-reporting of income is tenable when the assessee has shown substantial compliance and sought immunity, considering the circumstances of the disallowances.
Sections Cited
14A, 36(1)(iii), 40(a)(ia), 143(3), 270A, 270AA, 115JB, 115JC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI PRAKASH CHAND YADAV
PER PRAKASH CHAND YADAV, JUDICIAL MEMBER:
Present appeal of the assessee is arising from the order of ld. CIT(A) dated 26.8.2024 and relates to assessment year 2017-18 having DIN & Order No.ITBA/NFAC/S/250/2024- 25/1067988663(1).
Brief facts of the case are that the assessee is a Private Limited company which is engaged in the business of granites. The scrutiny assessment was concluded under section 143(3) of the Income Tax Act, 1961 (in short “The Act”) wherein additions were made u/s 14A, 36(1)(iii) and 40(a)(ia) of the Act totaling to Rs.49,28,158/-. Since there was negative income returned, there was only a tax demand of Rs.5/- pursuant to the orders passed u/s 143(3) of the Act, the assessee chose not to contest the order under appeal and accepted DACSS Granites Pvt. Ltd., Bangalore Page 2 of 6 the additions made in the quantum assessment. Thereafter, a show cause notice dated 16.12.2019 u/s 270A of the Act was issued to the assessee asking him as to why penalty was not exigible for under reporting. In response the assessee filed its reply objecting to the levy of penalty u/s 270A of the Act. The AO without considering the same levied a penalty of Rs.7,61,400/- towards under reporting of income.
2.1. The relevant observations of the AO are as under:
DACSS Granites Pvt. Ltd., Bangalore Page 3 of 6 2.2 Aggrieved with the order of AO, the assessee filed an appeal before the ld. CIT(A) and contested that the penalty levied by the AO is not tenable. The assessee has contended that the assessee is neither guilty of under reporting nor guilty of mis-reporting. However, the ld. CIT(A) could not find any force in the arguments of the assessee and confirmed the levy of penalty.
2.3 Aggrieved with the order of ld. CIT(A), the assessee has come up in appeal before us and has raised following grounds of appeal:
2.4 Ld. Counsel for the assessee contended that the disallowance made by the ld. AO during the assessment proceedings are of two categories. a) Disallowance of Rs.33,92,033/- u/s 36(1)(iii) of the Act and b) Disallowance of Rs.7,50,000/- u/s 40(a)(i) of the Act.
2.5 Ld. Counsel for the assessee contended that the disallowance made by the AO u/s 36(1)(iii) of the Act is not tenable in view of the fact that the assessee was having reserves of Rs.17.89 Crores on the date, when the assessee had advanced the sum to its sister concern for the purpose of business. Ld. Counsel for the assessee relied upon the judgement in the case of Reliance Utilities & Power Ltd. reported in 313 ITR 340 for the proposition that when surplus funds are there with the assessee, then no disallowance can be made on proportionate basis u/s 36(1)(iii) of the Act. So far as the disallowance made by the ld. AO u/s 40(a)(i) of the Act is concerned, ld. Counsel for the assessee contended that the assessee has initially deducted TDS @ 30%. However, realizing the mistake, the assessee had disallowed 70% of the payments made and hence, there is no violation of section 40(a)(i) of the Act. Ld. Counsel for the assessee lastly contended that the figures disclosed by the assessee are accepted by the AO in totality and hence, it is not a case of either mis-reporting or under reporting of the income.
We have heard the rival submissions and perused the materials available on record. We observe that in this case, it is an admitted position of fact that the assessee was having surplus funds in the shape of reserves to the tune of Rs.17.89 crores as evident from the facts coming out from the orders of authorities below. Further, the assessee has also acted bona-fidely while deducting the TDS @ 30% and upon realizing its mistake, disallowed the 70% of the payments made in accordance with law. These facts are not controverted by the ld. AO and the ld. D.R. It is pertinent to note that the Ld CIT(A) has partly deleted the penalty, levied by the AO with the respect to the issue of 14A disallowances and disallowance made by the AO in terms of the provisions of section 2(24)(X).
Further assessee has also sought immunity as per the provisions of section 270AA(2) of the Act. It is an admitted position of facts that the assessee has filed application for getting immunity in Form-68. However, the CIT(A) rejected this argument on the ground that the same was filed belatedly. We observe that there are two decisions of the coordinate Benches of the Tribunal wherein it is held that filing of Form 68 is mere procedural compliance and if the assessee has substantially complied with the payment of taxes then immunity shall be granted to the assessee. A reference can be made to the decision of Pawan Kumar Bhatia Vs ITO – ITA-No- 454/Jodhpur/2023 dated 21.03.2024 and to the decision of Hyderabad Bench in the case of Karim Nagar District Cooperative Society ITA No- 701/Hyd/2024 order dated 20.09.2024. It is not in dispute that the assessee has deposited the due taxes, it also not in dispute that assessee has not filed any appeal against the assessment order. Therefore, filing of form 68 beyond due date is DACSS Granites Pvt. Ltd., Bangalore Page 6 of 6 mere irregularity in our view, as held by coordinate Bench in Pawan Kumar Bhatia case (Supra) and Karim Nagar District Case. Therefore, considering the totality of the facts and circumstances we are of the view that the penalty levied by the AO is not tenable in law.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 11th Dec, 2024