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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: S/SHRI B.R.BASKARAN & AMARJIT SINGH
आदेश / O R D E R PER AMARJIT SINGH, JM:
The appeal in 2000-01 is filed by the assessee against the order dated 26-08-2010 of the learned Commissioner of Income Tax (Appeals)-3, Mumbai [hereinafter referred to as the “learned CIT(A)”] passed in appeal No.CIT(A)-3/ACIT 11(2)/IT-13/2008- 09. The assessee has raised the following grounds of appeal:-
“1. Your appellant filed their return of income declaring a loss of Rs. 81,725/=.
Assessment Year: 2000-01 2. The learned assessing officer completed the assessment under Section 143(3) of the Act, inter alia adding a sum of Rs. 41,81,425/= u/s 40A(3) of the Act, as the payments were made in excess of Rs. 20,000/= otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, 20% of such expenditure was not allowed as deduction. Accordingly, addition of Rs. 8,36,249/= being professional paid in cash was made u/s 40A(3).
3. The legal veracity or admissibility of the expenses are not disputed and only an adhoc amount has been added without any scientific basis.
4. The assessee filed an appeal before the CIT(A) who affirmed the AO’s assessment. In not going into second appeal, Appellant had chosen to buy peace with the department as that there was no tax implication as Appellant had huge carried forward depreciation to its credit.
The AO levied penalty u/s 271(1)(c) for concealment/furnishing inaccurate particulars in respect of this ad-hoc disallowance of 20% i.e. Rs. 8,36,249/=. In as much as this is an addition borne out by a legal fiction, concealment penalty ought not to be levied.
6. On appeal before CIT(A) the penalty levied by the AO was affirmed; hence the present appeal.”
A survey action u/s. 133A of the Income Tax Act,1961 (in short ‘ the Act’) was carried out at the hospital premises of the assessee-company at Bank Road, Calicut, Kerala on 25/02/2000 by the Deputy Director of Income Tax (Inv.), Calicut, in pursuance of the search and seizure action in the case of Dr. Roy Chally, who was a doctor and was also practicing from the premises of the assessee company. During the course of the survey, it was noticed that operation charges amounting to Rs. 1,97,16,764/- collected by the hospital from the patients during the previous year relevant to the assessment year under consideration had not been accounted for in the books of the assessee company. As there was reason to believe that income chargeable to tax amounting to Rs. 1,97,16,764/- had escaped assessment by failure on the part of the assessee to disclose fully and truly all material facts relevant to its assessment for the year under consideration, the assessment was reopened by issue of a notice u/s. 148 of the Act on 26/07/2005. In response to the said notice, the assessee’s representative, M/s. P.N.Subramanian & Co., Chartered Accountant, filed a letter dated 18/08/2005, stating that the assessee had filed the return of income
Assessment Year: 2000-01 for the year under consideration originally on 29/11/2000 and subsequently, a revised return of income was filed on 25/10/2002. The assessee’s representatives stated that the same may be treated as the return filed in response to the notice u/s 148 of the Income Tax Act. Thereafter, the questionnaire was issued and in pursuance of the questionnaire Shri. Suresh Subramanian, Chartered Accountant attended the case and presented the case of the assessee and also filed the written submission stating that the assessee hospital paid an amount of Rs. 41,81,245/- to nine different doctors and it was also noticed that the hospital had also collected an amount of Rs.1,97,16,764/- for operation charges form the patient during the relevant assessment year. The assessing officer disallowed the professional fees expenditure of an amount of Rs. 41,81,245/- to the doctors on the ground that the transaction which has been made excess an amount of Rs. 20,000/- is not required to be allowed, if the same was not done through banks. Accordingly, the A.O. disallowed a sum of Rs. 8,36,249/-, being 20% of Rs. 41,81,245/- u/s 40A(3) of the I.T. Act. Subsequently, the penalty order u/s 271(1)(c) of the Act dated 14/03/2008 was passed by imposing the penalty to the tune of Rs. 3,21,956/- on the above said disallowance, which was also confirmed by the CIT(A)-3, Mumbai by virtue of an order dated 26/08/2010, accordingly the assessee hospital is in appeal before us.
We have heard the representatives of the parties and have gone through the materials filed. The representative of the assessee has argued that it is not the case of concealment or furnishing inaccurate particulars. Therefore in the said circumstance the order of the Ld. CIT(A) dated 26/08/2010 confirming the order of Assessing Officer is wrong and an intact it is liable to beset aside. It is also argued that non-compliance of the provisions of the section 40A(3) nowhere attract the provisions of penalty when the particulars were furnished accurately. Therefore the penalty is not leviable on this ground, in view of the Assessment Year: 2000-01 case laws in the case of Salman Khan Vs ACIT (ITA 2559&2560 ITAT Mumbai), ACIT Vs VIP Industries(122 TTJ 289 ITAT Mumbai), Poonam Marble Pvt. Ltd. Vs DY. CIT (62 SOT 137 ITAT Jodhpur), Godavari Townships Pvt. Ltd. Vs DCIT (103 DTR 1 ITAT Vishakapattanam), CIT Vs Reliance Petro Products Pvt. Ltd. (2010)322 ITR 158 (SC).
On the other hand, the learned DR argued that the assessee failed to comply with the provisions u/s 40A(3). Therefore, the claim of the assessee was rightly disallowed and the said claim leads to the penalty u/s 271(1)(c). Therefore, under the circumstance, the appeal filed by the assessee is liable to dismissed.
5. Keeping in view the arguments advanced by the learned representatives of both the parties and on careful perusal of the records, it came to notice that the assesee’s claim for expenditure on account of professional fees paid to the Doctors, whose names have been mentioned in the Assessment order, to the tune of Rs. 41,81,245/-. It was also not under dispute that the assessee-company has also paid TDS along with interest of Rs.2,78,260/- as per order u/s. 201 read with section 194J of the Income Tax Act, 1961. The Assessing Officer disallowed an amount of Rs. 8,36,249/-, being 20% of the expenditure paid to the Doctors to the tune of Rs. 41,81,245/- u/s 40A(3) and the said amount was added back to the total income of the assessee. The order of the Assessing Officer dated 21/10/2005 which speaks that there is no concealment or furnishing inaccurate particulars by the assessee. Apparently, the present case is the case u/s 271(1)(c). In this regard we find support of law settled in the case of Salman Khan Vs ACIT (ITA 2559&2560 ITAT Mumbai), ACIT Vs VIP Industries(122 TTJ 289 ITAT Mumbai), Poonam Marble Pvt. Ltd. Vs DY. CIT (62 SOT 137 ITAT Jodhpur), Godavari Townships Pvt. Ltd. Vs DCIT (103 DTR 1 ITAT Vishakapattanam), Reliance Petro Products Pvt. Ltd. (2010)322 ITR 158 (SC). In the above cited case, it has been held that the disallowance
Assessment Year: 2000-01 made u/s. 40A(3) of the Act cannot be considered to be a wrongful claim of expenses so as to attract penalty. Accordingly we are unable to agree with the view taken by learned CIT(A). Accordingly, we set aside his order and direct the A.O. to cancel the impugned penalty
In the result, the appeal of the assessee is hereby allowed.