SHARMILLA VAZ,MUMBAI vs. ITO, WARD 11(1)(4), MUMBAI

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ITA 5722/MUM/2013Status: DisposedITAT Mumbai29 August 2016AY 2006-074 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that penalty under Section 271(1)(c) is not attracted for disallowances made under Section 40(a)(ia) due to non-deduction of TDS. It also held that ad-hoc disallowances based on presumption do not attract penalty.

What were the facts?

The assessee's return was assessed under Section 144 due to non-cooperation, leading to disallowance of expenses. The CIT(A) confirmed a penalty levied under Section 271(1)(c) on these disallowances.

What were the issues?

Whether penalty under Section 271(1)(c) can be levied for disallowances made under Section 40(a)(ia) and for ad-hoc disallowances.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 144,Section 40(a)(ia)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E” Bench, Mumbai

Before: Shri Mahavir Singh (JM) & Shri B.R. Baskaran (AM)

For Appellant: Shri Paresh Shapona
For Respondent: Ms. Beena Subhash
Hearing: 29.8.2016Pronounced: 29.8.2016

O R D E R Per B.R. Baskaran (AM) :-

The appeal filed by the assessee is directed against the order dated 14.8.2013 passed by learned CIT(A)-3, Mumbai confirming the penalty of ` 2,86,103/- levied by the Assessing Officer u/s. 271(1)(c) of the I.T. Act.

2.

Learned AR submitted that the assessee is a professional singer and she filed her return of income declaring a total income at ` 5,32,992/-. Since the assessee did not cooperate with the Assessing Officer, the assessment was completed u/s.144 of the Act, wherein entire expenses claimed by the assessee was disallowed. In the appellate proceedings, the assessee failed details relating to expenses and accordingly learned CIT(A) called for a remand report from the AO. After considering the remand report, learned CIT(A) sustained following additions :-

i) Salary ` 6,38,600/- ii) Instrument charges ` 2,11,380/- iii) Training expenses (50%) ` 27,785/- iv) Out of remaining expenses (20%) ` 42,314/- ` 9,20,079/- It is pertinent to note that the disallowance from salary expenses and instrument charges was made u/s. 40(a)(ia) of the Act for non deduction of tax at source. Remaining two disallowances were made on adhoc basis to take care of Personal/non-professional portion.

3.

Learned AR submitted that the disallowance made u/s. 40(a)(ia) would not attract penalty provisions u/s. 271(1)(c) of the Act, since the same cannot be considered as a case of concealment of particulars of income or furnishing of inaccurate particulars of income. In support of this proposition learned AR placed reliance on host of case laws. He further submitted that the remaining two disallowances have been made on estimated basis and hence the same are also not liable for penalty.

4.

On the contrary, learned Departmental Representative placed heavy reliance on the order passed by learned CIT(A).

5.

We have heard the rival contentions and perused the record. We noticed that the identical issue with regard to levying of penalty u/s. 271(1)(c) for disallowance made u/s 40(a)(ia) was considered by the Coordinate Bench in the case of Rushi Builders and Developers Vs. ACIT (ITA No. 6684/Mum/2012 dated 4.3.2015) and the Tribunal has decided the issue in favour of the assessee with following observations :-

“4. We have heard the rival contentions and have also gone through the records. In this case, the penalty has been levied for disallowance of expenditure u/s.40(a)(ia) of the Act. It is not a case of furnishing of inaccurate particulars of income or concealment of income. The failure to deduct the TDS on the part of the assessee has resulted in disallowance of expenditure. The assessee had not furnished any inaccurate particulars of income or expenditure. The assessee has already faced the consequences by way of disallowance of expenditure for non-deduction of TDS as per the provisions of section 194C of the Act. It is not the case of the Revenue that the assessee had not incurred the expenditure claimed or that the claim of expenditure was bogus or incorrect. The disallowance of expenditure was attracted due to non-deduction of TDS and it cannot be said to be a case of concealment of income or furnishing of inaccurate particulars of income. The levy of penalty u/s.271(1)(c) of the Act is not attracted in this case and the same is accordingly ordered to be deleted.”

6.

We notice that the co-ordinate bench of Tribunal has considered an identical issue in the case of ITO Vs. M/s. Western Outdoor Media Technologies Pvt. Ltd. (ITA No. 5400/Mum/2014 dated 20.7.2016) and also in other cases relied upon by the assessee, wherein also the penalty was deleted on identical reasoning. Following the decisions referred above, we also direct the Assessing Officer to delete the penalty levied on the disallowances made for non deduction of tax u/s. 40(a)(ia) of the Act. With regard to the remaining two disallowances we noticed that they have been made on adhoc basis on the presumption that there would be an element of personal nature/non professional nature in the said expenses. Since the said disallowances have been made on adhoc basis by drawing certain presumptions, we are of the view that they would not attract penalty u/s. 271(1)(c) of the Act.

7.

In view of the above, we set aside the order passed by learned CIT(A) and direct the Assessing Officer to delete the penalty levied u/s. 271(1)(c) of the Act.

8.

In the result, appeal filed by the assessee is allowed.

Order has been pronounced in the Court on 29.8.2016

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