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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A)- VIII, New Delhi dated 17.10.2012 for the AY 2006-07, wherein the penalty u/s 271(1)(c) of the Income Tax Act of Rs. 336600/- levied by the ld Income Tax Officer, Ward-12(2), New Delhi by order dated 20.05.2009 was confirmed. 2. The assessee has raised the following grounds of appeals:- “1. That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-VII, New Delhi erred in of penalty of Rs. 3,36,600/- u/s 271 (l)(c) of Income Tax Act. 1961 levied by Income Tax Officer, Ward 12(2), Delhi.
2. That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-VII, New Delhi ,erred in not appreciating that disallowance under section 40a(ia) is not liable for penalty under section 271 (1)( c ) of Income Tax Act, 1961, as the appellant had neither concealed particulars of income nor misrepresented the same.
3. That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-VII, New Delhi, erred in upholding levying penalty of Rs. 3,36,600/- u/s 271 (l)(c) of Income Tax Act. 1961, levied by assessing officer in absence of Page | 1 Goodluck Commercials Ltd Vs. ITO, (Assessment Year: 2006-07) any satisfaction drawn that the disallowances forming basis of penalty made at assessment stage are on account of deliberate , malafide intention of the assessee to conceal the particulars or nor furnished inaccurate particulars.
4. That That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-VII, New Delhi, erred in upholding levying penalty of Rs. 3,36,600/- u/s 271 (l)(c) without appreciating that the Ld. A.O. levied penalty without establishing that the explanation furnished by the appellant was false.
5. That That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-VII, New Delhi, erred in upholding penalty order pervasive to binding decisions interpreting provision explained by courts.
6. That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-VII, New Delhi erred not appreciating the facts of the case.
7. That without prejudice and in the alternative the order passed by the ld Assessing Officer and confirmed by Hon’ble Commissioner of Income Tax (Appeals)-VII, New Delhi is bad in law.”
Though assessee has raised in all seven grounds of appeal
however, the main grievance of the assessee is with respect to levy of the penalty.
4. The brief facts of the case are that the assessee is a company who filed its return of income on 28.11.2006 declaring total income of Rs. 253581/- . During the assessment proceedings, it was found that assessee has incurred Rs. 10 lacs as expenses towards construction and renovation of real estate in its real estate business through Mr. K.K. Aneja under an agreement dated 22.11.2004 without deduction of tax at source u/s 194C of the Act. The explanation of the assessee was that as the payment is for addition to the fixed assets therefore, tax is not required to be deducted. Ld Assessing Officer issued notice u/s 133(6) to the recipient and found that Rs. 10 lacs are paid on 28.03.2008 and shown as cost of purchases, which is debited to profit and loss account. Therefore, the disallowance of Rs. 10 lacs was made in order u/s 143(3) of the Act dated 08.11.2008 assessing the total income at Rs. 1363245/-. The penalty notice was also issued to the assessee u/s 271(1)(c) of the Act. The assessee did not Goodluck Commercials Ltd Vs. ITO, (Assessment Year: 2006-07) contest the above addition and therefore, penalty proceedings were taken up.
5. The assessee submitted that the assessee was under the impression that above payment was for addition to the fixed assets. The ld AO rejected the contention of the assessee and levied penalty u/s 271(1)(c) of the Act holding that assessee has made a conscious and willful default in furnishing inaccurate particulars of income. The penalty of Rs. 336600/- was levied vide order dated 20.05.2009.
6. The assessee contested the above penalty before the ld CIT(A), who dismissed the appeal. Aggrieved the assessee preferred appeal before us.
7. The ld AR submitted as under:- a. That assessee was under the bonafide belief that as it is the payment for fixed assets, tax is not required to be deducted. b. This is the first year of the deduction of introduction of section 40a(ia) which were applicable from 01.04.2006. Therefore, assessee was under the belief that it would be applicable from FY 01.04.2006 to 31.03.2007. Hence, there was misconception regarding applicability of those provisions. He further stated that even if that was the first year of the provisions of section 40a(ia). c. He further stated that there is no doubt about the genuineness of the payment as otherwise same is allowed as deduction. He submitted that mere disallowance of expenditure cannot lead to penalty. d. He further submitted that ld Assessing Officer while levying the penalty has not at all identified the charge that whether the penalty is leviable for concealment of income or furnishing of inaccurate particulars. He submitted that there is no charge in the assessment order but the AO has levied the penalty for furnishing of inaccurate particulars of income. e. Even otherwise he submitted that assessee has not submitted any particulars, which are found to be inaccurate. f. He further stated that there is no satisfaction in the assessment order about levy of the penalty and its charge.
Goodluck Commercials Ltd Vs. ITO, (Assessment Year: 2006-07) g. He further relied upon the decision of the Hon'ble Delhi High Court holding that disallowance u/s 40a(i) on non deduction of tax at source cannot be a ground for levy of penalty. CIT Vs. AT&T Communications 342 ITR 247. He further relied on the decision of Hon'ble Gujarat High Court in CIT Vs. Dayabhai Veljibhai Patel.
The ld DR relied heavily on the orders of the lower authorities stating that assessee has failed to deduct tax at source and therefore disallowance has been made. It was a false claim of deduction.
We have carefully considered the rival contentions and also perused the reasons recorded for the disallowance as well as penalties by the lower authorities. The only issue involved in this appeal is that when tax is not deducted at source on certain payment and disallowance is made u/s 40a(ia) of the Income Tax Act, whether such disallowance can result into penalty u/s 271(1)(c) of the Act. Facts shows that assessee has made a payment of Rs. 10 lacs on which admittedly tax was required to be deducted and assessee did not deduct so and hence, resulted into disallowance and consequent penalty. The Hon'ble Gujarat High Court in case of CIT Vs. Dayabhai Veljibhai Patel (supra) directly covers the whole issue wherein the assessee failed to deduct tax at source u/s 194C of the Act, the penalty was levied. Hon'ble High Court held that it is merely a disallowance of expenditure and further the genuineness of the expenditure was not in doubt the penalty u/s 271(1)(c) cannot be levied. Therefore, the issue is squarely covered in favour of the assessee. Further, it is not the case of the revenue that assessee has not disclosed all the particulars related to such payments. The issue is also covered in favour of the assessee by the decision of the coordinate bench in for Assessment Year 2008-09 wherein, the assessee made proper disclosure and expenditure was neither held to be bogus or not disallowable but for non-deduction of tax, penalty cannot be levied. Further Hon'ble Delhi High Court in CIT Vs. AT&T Communication Services India Pvt. Ltd 342 ITR 257 has held that levy of penalty merely on disallowance u/s 40a(i) in case of payment made to nonresident cannot be levied. Furthermore, now it is merely a postponement of deductibility