VDB INFRA AND REALTY PRIVATE LIMITED,BENGALURU vs. INCOME-TAX OFFICER, WARD-7(1)(4), BANGALORE

Date of Hearing : 18.01.2024 Date of Pronouncement : 18.01.2024 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against order of NFAC for the assessment year 2017-18 dated 6.10.2023 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). The assessee has raised following grounds of appeal:

1. The Order of the Ld. Commissioner of Income Tax, (Appeals), NFAC, Delhi, is erroneous and is not based on facts and circumstances of the case. Hence the same is bad in law and the decision of Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi.

2. The Ld. CIT (Appeals), NFAC, Delhi erred in upholding the Penalty order passed by the Ld. AO. The Ld. CIT(A), NFAC, Delhi failed to adjudicate on the correctness of applicability of Sec 270A(9) in respect of the additions made in the Assessment order.

3. The Ld. CIT(A), NFAC, Delhi failed to appreciate that the additions do not come within the purview of "under-reported income" on account of Sec 270A(6) of the Income Tax Act 1961.

VDB Infra and Realty Private Ltd., Bangalore Page 2 of 8 4. The Ld. CIT(A), NFAC, Delhi failed to appreciate that the entire expenditure was subjected to TDS and there is no bogus expenditure 5. The Ld. CIT(A), NFAC, Delhi failed to appreciate that the expenditure which forms part of additions in the Asst. Order accounts for 2% of the total expenditure for which the details were sought. The Ld. CIT(A), NFAC, Delhi failed to appreciate that in the era of faceless assessment, uploading of all the bills and vouchers is not possible within the short time granted for scrutiny proceedings.

6. The appellant therefore prays the Hon'ble Income Tax, Appellate Tribunal to i) Confirm that no penalty under Sec 270A is leviable in respect of additions which were made on the basis of estimation for disallowance of expenditure. ii) Delete the Penalty levied by the Ld. AO on the basis of additions made in the Assessment Order and confirmed by the Hon'ble CIT(A),

2.2 On appeal, ld. CIT(A) observed that the reason of misunderstanding or misinterpreting of any particular provisions of the Act cannot form the basis of the explanation in a statutory proceeding simply because such a presumption cannot be established by evidences. Misinterpretation of the law does not give the assessee immunity from the repercussions of breaking it. During the course of assessment proceedings, the assessee could not able to substantiate expenditure with concrete evidence. The two expenses pointed out by the AO were labour oriented charges. Only on technical grounds they are being disallowed.

2.3 He further observed that it is clear that the assessee made a claim of expenditure not substantiated by any evidence. The assessee was not able to substantiate its expenses with concrete evidences and it is clear that these expenses were wrongly claimed to evade tax. Therefore, its case falls within the purview of sec. 270A(9)(a) of the Act.

2.4 In view of the above, levying penalty of Rs. 10,18,758/- u/s 270A(9) of the Act for misreporting of income was upheld by the ld. CIT(A) and he dismissed the appeal of the assessee.

VDB Infra and Realty Private Ltd., Bangalore Page 4 of 8 3. We have heard the rival submissions and perused the materials available on record. The contention of the ld. A.R. is that the ld. AO has passed penalty order levying penalty u/s 270A(9)(a) of the Act stating that there is a mis-representation or suppression of the facts, thereby misreporting of income. However, in assessment order, he mentioned that levy of penalty u/s 270A(9)(c) of the Act. The ld. CIT(A) has confirmed the penalty u/s 270A(9)(a) of the Act, which was not the case of ld. AO. On the other hand, case of the ld. AO was the levy of penalty u/s 270A(9)(c) of the Act. According to the assessee, all expenses are supported by vouchers recorded in the books of accounts of the assessee and payment through banking channels and due TDS has been made and the books of accounts of the assessee were duly audited by statutory/tax auditors. According to the ld. A.R., adhoc disallowance was made by ld. AO for the reason best known to him cannot qualify for levy of penalty u/s 270A(9)(a) or (c) of the Act. He submitted that all the details for the purpose of assessment i.e. bills, vouchers, receipts, etc. were produced by the assessee. At the time of assessment, the ld. AO without specifying the specific discrepancies in the books of accounts of the assessee, he disallowed 10% of the expenditure mentioning that assessee was unable to provide all details in respect of expenses claimed. The assessee has furnished full details of expenses i.e. Form Fire Safety Expenses at Rs.6,52,936/- and Tor Steel Rolling expenses at Rs.9,95,541/- with the name, dates, mode of payment, TDS, PAN, etc. before ld. CIT(A)/NFAC. However, they overlooked the details furnished by assessee and confirmed the penalty u/s 270A(9)(a) of the Act. According to the ld. A.R., the discrepancy found by the ld. AO as confirmed by the ld. CIT(A) do not come within the purview of under reporting of income and penalty cannot be levied. For this purpose, he relied on the judgement in the case of“Jai Balaji Business Corporation Pvt. Ltd. Vs. ACIT in dated 10.2.2023, wherein held that “Sec. 270A VDB Infra and Realty Private Ltd., Bangalore Page 5 of 8 of the Act provides for imposition of penalty for under-reporting and misreporting of income. Sub-s. (2) enlists certain circumstances of under- reporting of income. Sub-s. (3) deals with the determination of underreported income, which, in our context, is by reducing the income returned by the assessee from the amount of income finally assessed. Sub- s. (6) is relevant for our purpose which states that under-reported income for the purpose of this section shall not include certain items. Cl. (b) of sub-s. (6) refers to: “the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the AO." It is ostensible from the language of sub-s. (6) that an addition made on the basis of estimation cannot provide foundation for under-reported income for the purpose of imposition of penalty under s. 270A of the Act. As the only basis of the addition is the estimate made by the DVO, we hold that the penalty cannot be sustained. We, therefore, order to delete the same.”

3.1 Further, he relied on the order of the Tribunal Chennai Bench in the case of Pallava Textiles Pvt. Ltd. Vs. ITO (2023) 37 NYPTTJ 352 (Chennai) (2023). Thus, he submitted that the addition made on estimate basis, penalty cannot be levied. 4. The ld. D.R. relied on the order of lower authorities. 5. We have heard the rival submissions and perused the materials available on record. In this case, the ld. AO has pointed out the defects in vouchers as follows:

“4. Disallowance on the Form. Fire. Safety etc expenses: Assessee company is engaged in the business of construction of apartment and flats and has claimed a sum of \ Rs.40647331/- as expenses on the various heads i.e (Form, fire, safety etc Expenses ) for the construction purpose. Assessee was asked to substantiate the said expenses with ledger and breakup along with the TDS reconciliation if any. Assessee has furnished the details for the same. On verification it is found that Expenses for the form work of Rs. 6529S6/- was paid to individual, however no details submitted for the genuineness for the same. Hence an amount of Rs. 652936A- is disallowed and added to the income of the assessee. (Addition : Rs.6,52,936/-)

VDB Infra and Realty Private Ltd., Bangalore Page 6 of 8 5: Disallowance on the Torsteel Rolling etc Expenses: It was noticed from the submission filed by the assessee that assessee has claimed a sum of Rs.48307977/- as expenses on the various heads i.e (Torsteel Rolling etc Expenses) for the construction purpose. Assessee was asked to substantiate the said expenses with ledger and breakup along with the TDS reconciliation if any. Assessee has furnished the details for the same. On verification it is found that Expenses for the installation charges of Rs. 9955404- was paid to various entity, however assessee was unable to provide the all details in respect of the expenses claimed. Hence 10% of the said amount/ expenses i.e Rs. 9,95,541/- (10% of Rs.9955404) is disallowed and added to the income of the assessee.”

(Addition: Rs.9,95,541/-) Penalty u/s 270A(9)(a) is initiated for misreporting of income.”

5.1 Consequently, he levied penalty u/s 270A(9)(c) of the Act since the assessee was not able to substantiate his expenses with concrete evidence. The facts are that the assessee produced the books of accounts, vouchers and the payment has been made through banking channels, the payments which are required to be subject to deduction of TDS, same has been deducted. Still, the ld. AO was of the opinion that the assessee has not produced the concrete evidence to support the payments. The NFAC/CIT(A) has agreed by the contention that there was no failure on the part of assessee to claim expenditure and it was admitted that assessee has substantiated the expenditure by evidence. On the other hand, he invoked the provisions of section 270A(9)(a) of the Act for misrepresentation or suppression of facts. In our opinion, even if he wants to change the head of levying of penalty u/s 270A o the Act after agreeing with the contention of the assessee that it not falls under the limb for which the ld. AO has levied the penalty, he should give a fresh notice to the assessee, so as to give an opportunity of hearing to explain the case of the assessee under the limb which the CIT(A) has invoked. Admittedly, the NFAC has not carried out this exercise. On this count, the penalty cannot be levied. Without prejudice to this, in our opinion, the disallowance of expenditure made by ld. AO on estimate basis though the assessee has filed all the necessary details of VDB Infra and Realty Private Ltd., Bangalore Page 7 of 8 expenditure, which is not accepted by the ld. AO for the reason best known to him and as such, this case is not fit for levy of penalty u/s 270A(9)(a) or 270A(9)(c) of the Act. Further, in penalty order, the authorities proceeded merely on the basis of findings in the quantum proceedings and have not independently examined the matter for levy of impugned penalty. Even on this procedural count, penalty levied cannot be sustained. Though the addition was made on adhoc basis that by itself does not prove that there is any conclusive material to suggest that the assessee has not incurred this expenditure and penalty cannot be levied in this kind of situation, unless the claim of assessee was proved to be bogus or that any amount was not spent by assessee or received back by the assessee. In other words, the disallowance of expenditure by itself cannot be the reason to levy the penalty u/s 270A(9)(a) or 270(9)(c) of the Act. The addition is only on estimate basis and the ld. AO could not prove that there was non- incurring of this expenditure by assessee and there was no positive material to suggest that the assessee misrepresented or suppressed any facts either before ld. AO or before ld. CIT(A). Hence, in our opinion, this is not a fit case for penalty u/s 270A(9)(a) or 270A(9)(c) of the Act. Accordingly, we delete the penalty.