ITO 8(3)(4), MUMBAI vs. VADILAL MILK PRODUCTS LTD, MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member):

1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty of Rs.3,03,340/- levied u/s271(1)(c) by observing that mere making of claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars of income without appreciating the fact that in its return for the year under consideration, the assessee had claimed deduction of the impugned amount of Rs.9,01,184/- in respect of expenditure disallowed u/s 40(a)(ia) in A.Y.2005-06, even though the assessee had actually not paid the same in the present year and hence was not entitled to the said deduction." 2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty of Rs.3,03,340/- levied u/s271(1)(c) without appreciating the fact that by claiming the impugned deduction of Rs.9,01,184/- which was undisputedly inadmissible in view of the provisions of section 40(a)(ia), the assessee has failed to rebut the presumption of Explanation 1 to section 271(1)(c) of the I.T. Act, 1961 and hence liable for penalty thereunder." 3. "The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored."

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4. The appellant craves to leave to amend or alter any grounds or add a new ground which may be necessary."

2. During the course of hearing, Learned Departmental Representative (in short ’Ld. DR’) has relied upon the order of the AO and requested for confirming the levy of penalty. On the other hand, Ld. Counsel of the assessee submitted that Ld. AO had wrongly computed the penalty, and in any case it was not a fit case for levy of penalty. It has been argued by him that the assessee was a sick company and was passing through tough time and was incurring continuous losses. Thus, the staff of the assessee had left the job and due to few other reasons the assessee was not able to properly carry out, the exercise of reconciliation of amount of TDS deducted and deposited by it into the Government Treasury during the impugned F.Y. 2005-06, as a result which disallowance was made u/s 40(a)(ia) of the Act. However, the assessee did not make any false claim in its return of income. There was no mala fide intention on the part of the assessee. There was no concealment of income on the part of the assessee. There was no motive to evade any taxes. The penalty has been wrongly levied by the AO and the same has been rightly deleted by the Ld. CIT(A), after taking into account all the facts and circumstances of the case and bona fide of the claim made by the assessee. It was requested that the order of Ld. CIT(A) in deleting the penalty should be upheld.

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2.1. We have gone through the orders of the lower authorities. It is seen that the Assessee was engaged in the business of marketing of the ice cream. It was noticed by the AO during the assessment proceedings that the Assessee made a claim of an amount aggregating to Rs.29,11,909/, as a deduction in the impugned year, on payment basis, which was disallowed in preceding assessment year i.e., A.Y. 2005-06 u/s 40(a)(ia) of the Act. The AO asked the assessee to reconcile the payments made during the impugned year pertaining to the TDS of earlier years along with TDS challans and TDS certificates. It has been stated by the AO in the assessment order that in response, the assessee could give reconciliation only for the amounts aggregating to Rs.8,01,661/-. As a result thereof, the AO made disallowance of balance amount of Rs.21,10,248/- ( i.e., Rs.29,11,909/- - Rs.8,01,661/-). The AO also initiated the penalty proceedings in respect of the excess claim amounting to Rs.21,10,248/-.

2.2 The assessee carried the matter in appeal before Ld. CIT(A). Before Ld. CIT(A), the assessee contended that original challan could not be produced at the time of assessment proceedings due to same difficulties faced by the assessee. The Ld. CIT(A) accepted the claim of the assessee in principle, and directed the AO to make verification of the TDS challans and delete the disallowance. Thereafter, the AO issued penalty notice u/s 271(1)(c). The assessee filed its reply dated 17.03.2012 and made the following submissions, in response to penalty notice issued by the AO:

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“… Our company had claimed an amount of Rs.29,11,909/- as deduction on payment basis of the amount disallowed u/s.40(a)(ia) in earlier assessment year 2005-06. The details of the payments were: (i) Rent --- Rs.27,450/- (ii) Salary --- Rs.90,000/- (iii) Profession & Contract – Rs. 51,375/- (iv) Contractor Payments (transportation) Rs.27,43,084/- Total Rs.29,11,909/- During the course of assessment proceddings, the AO asked the company to reconcile the payments of TDS to show the TDS return of A.Y.2005-06 and to submit form no.16A. Thereafter, the AO held that, no TDS return was field for A.Y.2005-06, TDS challans and TDS certificates issued were shown only to the extent of Rs.8,01,661/-. The learned AO allowed only Rs.8,01,661/- Against the disallowance by the AO, the company filed an appeal with the commissioner of Income tax(Appeals-18, Mumbai. During the course of appellant proceedings, it was submitted by the company that the TDS return could not be filed as the company became sick and the accounting staff had left the job and the accounts were in a mess. However, the TDS return was filed on 28.4.2009, a copy of which is submitted. Further, the company also submitted the TEDs payments made in addition of Rs.8,01,661/- which was already allowed by the AO. The company also submitted proof of payment of TDS of 6 Vadilal Milk Products.

Rs.24,410/- pertaining to payments of Rs.12,50,360/-. Then this appeal was partly allowed by the Honourable commissioner.

3. Mere disallowance of expenditure does not mean the concealment of information or misstatement.

2.4. Being aggrieved, the assessee carried the matter in first appeal) for contesting the penalty order before the Ld. CIT(A). It was contended by the assessee that subsequent to passing of the penalty order, the AO had made requisite verification and reconciliation of original challans vis-a-vis TDS payments and has allowed relief in the order passed u/s 154 dated

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06.07.2012 for Rs.12,39,064/-, and accordingly the amount of disallowance has been scaled down by the AO to Rs.9,01,184/- from Rs.21,10,248/-. It was submitted that penalty should be deleted straight away proportionate to the amount of disallowance reduced by AO himself. It was further submitted by the assessee before the Ld. CIT(A) that even for the remaining amount of disallowance, penalty is not attracted since disallowance made under the provisions of section 40(a)(ia) do not attract penalty provisions, as there was no concealment, and asssessee has made full disclosure of all the particulars in the Return of income of preceding assessment year as well as in the impugned assessment year. Keeping in view, all the facts and circumstances of the case and submissions of the assessee, Ld. CIT(A) deleted the penalty by observing as under:

“I have considered the submissions of the appellant order of the AO. and facts of the case carefully, it is noticed that the A.O. observed that the assessee made payments of Rs. 29,11,909/- without TDS. The AO observed that in view of Circular No. 715 dated 08.08.1995, the assessee was under obligation to make TDS u/s 194C of the I.T. Act on such payments. Since the payments were in violation of the previsions of Sec. 194C, the AO disallowed the same by invoking the provisions of Sec. 40(a)(ia) of the I.T. Act. Penalty proceedings u/s 271 (1 )(c) were initiated against the assessee for furnishing inaccurate particulars of 8 Vadilal Milk Products. income by claiming expenses which are not allowable as deduction u/s 40(a)(ia) under the I.T Act. In course appellate proceedings, in addition to the expenditure of Rs. 8,01,661/- allowed by the AO., the assessee furnished challans of payment of TDS, therefore the Ld CIT(A) has allowed partial relief to the assessee subject to verification of original challans by the AO. As per the directions contained in the appellate order the assessee was given opportunity to furnish for verification original challans for payment of TDS for considering allowing of expenses as per provisions of Sec 40(a)(ia). On verification of original challans of TDS payment, AO has allowed further deduction of expenditure to the extent of Rs.12,09,064/- u/s 40(a)(ia). As the amount of disallowance has been scaled down to Rs.9,01,184/- from Rs.21,10,248/- the quantum of penalty imposed u/s.271(1)(c) by order dated 30.03.2012 stands revised to Rs.3,03,340/-.

On the other hand, the AR of the appellant has submitted that disallowance made under the provisions of Sec 40(a)(ia) of I.T. Act do not attract penalty provisions for concealment in as much as the assessee had disclosed full particulars of such amounts in the computation of income for AY. 2005-06 disallowances were made and also in the AY 2006-07( in which the amount was claimed as deduction from the total income on the basis of payment of TDS and reliance was also placed on the decisions of 9 Vadilal Milk Products. hon’ble courts on this issue. Therefore, it was argued that it was not a case of concealment and submission of inaccurate particulars of income. The AR has also relied on the decisions in case of ACIT Vs. Seaways Shipping Ltd. (supra) The Hon'ble Hyderabad Tribunal has given a direct decision on this issue by holding as under: "We heard the Departmental Representative In this case, penalty is levied for disallowance of expenditure u/s 40(a)(ia) of the I.T. Act Non deduction of TDS by the assessee was resulted in disallowance of expenditure u/s 40(a)(ia), that itself cannot be Construed as furnishing inaccurate particulars of income or concealment of income. The assessee has failed to deduct TDS which resulted in disallowance of expenditure In our opinion. The mistake committed by the assessee was compensated by disallowing the expenditure Fortner the Revenue cannot penalize the assessee by levying penalty u/s 271 (1 )(c) of the Act. In order to levy penalty u/s 271(1)(c) of the Act. There has to be concealment of particular s of income of the assessee or the assessee must have furnished inaccurate particulars of its income. Present is not the case of concealment of income or it is not the case of Revenue that the assessee has furnished inaccurate particulars of income. The department has not found out that the assessee has furnished any factual information and the assessee is not guilty of furnishing of inaccurate particulars of income. In our opinion the conditions laid down in section 271(1)(c) of the Act is not complied with.

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Being so levy of penalty is not justified merely because the assessee has claimed certain expenditure that expenditure is not eligible in view of the provisions of sec. 40(a)(ia) of the Act and for that reason expenditure is disallowed. Penalty cannot be levied for mere making of a claim of the expenditure which is not sustainable and deletion of penalty by the CIT(A) is justified. We place reliance on the Judgment of the Hon'ble Supreme Court in the case of CIT vs Reliance Petro Products (P) Ltd. 322 ITR, 158. Accordingly the ground raised by the revenue holds no merit. Since the facts of the present case are squarely covered by the decision, which is further relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products (P) Ltd, therefore, the ground penalty levied by the AO is not sustainable hence deleted.”

2.5. We have gone through the findings of the Ld. CIT(A). Ld. DR was not able to controvert these findings , on facts or in law. The Ld. CIT(A) has rightly followed the judgment of Hyderabad Bench in the case of ACIT Vs. Seaways Shipping Ltd., for holding that this is not a case of concealment of income or furnishing of inaccurate particulars of income.

2.6. It is further seen by us that penalty order is quite vague. The AO was not sure at the time of levy of penalty, as to whether there was any concealment of income and if yes, then, of what amount. The AO has mentioned in the penalty order in para 4.3 that:

“ ……the tax on the amount of inaccurate particulars of income to the extent of Rs.29,11,909/- as per assessment order ( to be scaled down after verification original TDS

11 Vadilal Milk Products. challans) comes to Rs.9,80,150/- and three times thereof works out to Rs.29,40,450/-…….”

Thus, AO was not sure or clear at all about amount or quantum of income concealed. Penalty cannot be levied in such a vague and casual manner. In our view, no penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. In this case, explanation given by the assessee, can be said to have remained, at the most, ‘unproved’, in the given facts and circumstances of the case, and nothing was brought on record by the Ld AO, in the assessment proceedings or penalty proceedings, to ‘disprove’ the same. In other words, on the basis of facts and circumstances of this case, it cannot be said that assessee’s case is false. Our view finds support from the judgment of Hon’ble Bombay High Court in the case of CIT vs Upender V. Mithani, (order dt 5th August, 2009 in of 2009).

2.7. It has been further mentioned by the AO in the penalty order at para 4.2 that:

“ ……..following the directions contained in the appellant order, the assessee was given opportunity to furnish for verification original challns for payment of TDS. On 28.03.2012, the assessee filed photocopied of the challans along with statement of TDS and expenses for 12 Vadilal Milk Products. claiming deduction u/s 40(a)(ia). Appeal effect to the Appellate order has not been given for want of verification of original challans. As the limitation date for passing of his penalty order is 31.03.2012, the amount of penalty is being quantified on the amount disallowed in the assessment order, subject to rectification u/s.154 on furnishing of original challans evidencing payment of TDS for verification…….”

The perusal of the above observations would show that AO has proceeded to levy of the penalty without first discharging his legal obligation of precisely quantifying and ascertaining the amount of taxable income of the assessee. Until and unless, the assessed income is determined by the AO, correctly as per law, the AO is not conferred with the jurisdiction to levy the penalty. The penalty can be levied viz-a-viz ‘assessed income’ only. Unless the AO himself is sure that how much income is going to be assessed by him, he cannot proceed to levy the penalty and that too, in a highly vague and casual manner.

2.8. Further, we find that as per framework of penal provisions as contained in the Income Tax Act, the parameters for levy of penalty and for assessment of income, are quite different from each other, both can neither be mixed nor interchanged. Our view is supported with the judgment from coordinate bench of ITAT-Mumbai in the case of Manglam Drugs and Organics Ltd (ITA no 5454/Mum/ 2011 dt 24th

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September, 2015), relevant observations are reproduced hereunder:

“……..It is further noted by us that the AO has held that since the disallowances have been confirmed, it is established that the assessee has concealed its income and penalty is automatically leviable. In our view, this approach is also not acceptable as per law. It is now a well settled law, that the assessment proceedings are ‘independent’ proceedings. In a given situation, the assessee may be liable for assessment of his taxable income, but that would not, necessarily and automatically, make the Assessee liable for levy of penalty as well, on the income assessed. The parameters for imposition to tax and for levy of penalty are different under the law. Grave errors are done by the AOs, under the law, when both are mixed up. The assessee may be liable to be taxed for want of substantiation of the claim made by the Assessee, but for levy of penalty, the AO may be required to disprove the claim or to show that the claim made by the assessee was bogus. In the present case, no such exercise has been done at all by the AO while levying the penalty and the penalty has been levied in a highly automatic, mechanised and casual manner. This kind of approach gives rise to avoidable hardships to the taxpayers and should be avoided……..”

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2.9 In our considered view, the AO has not been able to make out any case for concealment of income or furnishing of inaccurate particulars of income by the assessee, as has been rightly held by the Ld. CIT(A) also, and therefore, we do not find anything wrong in the order of Ld. CIT(A), and hold that penalty has been rightly deleted by the Ld. CIT(A), and therefore, his order is confirmed.

Order pronounced in the open court on 14th October 2015.