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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
Both the captioned appeals are filed by the assessee. Ld. Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre, Delhi [Ld. CIT(A)-NFAC] in DIN & Order No. ITBA/NFAC/S/250/2022-23/1047961710(1), dated 13/12/2022 arising out of the penalty order passed U/s. 270A of the Income
2 Tax Act, 1961 [the Act] in DIN No. ITBA/PNL/F/270A/2021- 22/1035485882(1), dated 11/09/2021. is filed against the order of the Ld. CIT(A)-NFAC in DIN & Order No. ITBA/NFAC/S/250/2022-23/1047961930(1), dated 13/12/2022 arising out of the penalty order in DIN No ITBA/PNL/F/271B/2021-22/1035485876(1) passed U/s. 271B of the Act, dated 11/09/2021. Since the both the appeals are pertaining to one assessee and the issues involved in these appeals are inter-connected, for the sake of reference, they are clubbed, heard together and disposed off in this consolidated order. Appeal wise adjudication is given in the following paragraphs.
Briefly stated the facts of the case are that the assessee-firm filed its return of income for the AY 2017-18 on 30/10/2017 declaring a total income of Rs. 9,70,540/-. The case was selected for complete scrutiny under CASS for the reason that ‘large turnover shown in ITR but Audit Report (Form 3CD) was not filed’. The Ld. Assessing Officer passed an order U/s. 143(3) of the Act on 11/12/2019 by making an addition of Rs. 4,13,353/-.
The Ld. AO while framing the assessment, based on the 3 verification of information available on record, information filed by the assessee-firm and on reconciliation of the sales and purchases reported in the books of account of the assessee-firm with the monthly returns of VAT filed by the assessee-firm and found that the assessee-firm reported excess purchases of Rs. 2,81,128/- and short reported sales of Rs. 28,247/- in the books of account for the FY 2016-17 relevant to the AY 2-017-18. The Ld.AO therefore treated Rs. 3,09,600/- [Rs. 2,81,128 + Rs. 28,472/-] as business income of the assessee firm and initiated penalty proceedings U/s. 270A of the Act. Further, the Ld. AO also observed that the assessee has claimed expenses aggregating to Rs. 5,18,767/- which were not duly supported by proper vouchers which are self made vouchers and considered it as defective thereby disallowing 20% of the said expenses amounting to Rs. 1,03,753/- while framing the assessment proceedings. The Ld. AO therefore considered the above income of Rs. 4,13,353/- as underreported as per the provisions of section 270A(10) of the Act and levied a penalty of Rs. 200% on the tax amounting to Rs. 2,55,452/-. Aggrieved by the order of the Ld. AO levying the penalty, the assessee filed an appeal before the Ld. CIT(A)-NFAC.
On appeal, the Ld. CIT(A)-NFAC considering the submissions of the assessee, confirmed the order of the Ld.AO and dismissed the 4 appeal of the assessee. Aggrieved by the order of the Ld. CIT(A)- NFAC, the assessee is in further appeal before us.
In its appeal, the assessee has raised three grounds of appeal however, the only issue raised in this appeal is with respect to levy of penalty of Rs. 2,55,452/- U/s. 270A of the Act.
4. Before us, at the outset, the Ld. AR argued that the assessee has not underreported the income but has erroneously while filing the VAT returns omitted to include the purchases and the relevant sales. The Ld. AR further submitted that the purchase invoice was also presented before the Ld. AO which was not considered by the Ld. AO. Further, the Ld. AO also submitted that the Ld. AO has estimated the disallowance @ 20% on the expenditure claimed by the assessee and argued that since the disallowance is an estimated amount, no penalty can be levied U/s. 270A of the Act. On this issue, the Ld. AR relied on the Coordinate Bench decision in the case of M/s. Pallava Textiles Private Limited vs. ITO in (AY 2017-18), dated 10/03/2023.
5 Per contra, the Ld. Departmental Representative relied on the orders of the Ld. Revenue Authorities and fully supported the same.
We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. We find from the submissions of the Ld. AR that the assessee has failed to include the purchases and also the sales while filing the VAT returns. The assessee however in response to the show cause notice during the assessment proceedings has submitted the purchase bills before the Ld. AO vide letter dated 10/01/2020. Further, the Ld. AR also submitted before the Ld. AO that there is no short sales but only the sales returns which was not claimed as returns while filing the VAT returns. Further, we find that both the purchases and sales returns were duly accounted for in the books of accounts and produced before the Ld. AO. Section 270A of the Act empowers the Ld. AO to levy penalty in addition to tax on the underreported income. Section 270A(7) specifies the quantum of penalty @ 50% of the amount of tax payable on the underreported income. From the facts produced before us, we find that the assessee has erroneously failed to include the purchases and sales returns while filing the 6 monthly VAT returns. Further, we find that the assessee has produced copies of bills for purchases and the sales returns before the Ld. AO which cannot be considered as underreported arising out of the misrepresentation or suppression of facts. In these circumstances, we find it deem to be fit to restrict the penalty to 50% of the amount of tax payable on the above underreported income and thereby direct the Ld. AO accordingly.
Further, with respect to disallowance of expenditure arising out of estimation, we are of the considered view that once the disallowance is made on estimation basis, no penalty can be levied. Disallowance of expenditure cannot be said to be considered as underreporting of the income. In the instant case, even though the Ld. AO has discussed about the self-made vouchers but has not quantified the same thereby resorting to estimation of 20% of disallowance of expenditure claimed by the assessee. Therefore, the penalty levied by the Ld. AO and confirmed by the Ld. CIT(A)-NFAC on this issue is unsustainable and deserves to be deleted.
In the result, appeal of the assessee is partly allowed as indicated herein above.
ITA No.31/Viz/2023 (AY: 2017-18)
This appeal filed by the assessee against the order of the Ld. CIT(A)-NFAC, in DIN & Order No. ITBA/NFAC/S/250/2022- 23/1047961930(1), dated 13/12/2022 arising out of the penalty order passed by the Ld. AO U/s. 271B of the Act vide DIN and order No. ITBA/PNL/F/271B/2021-22/1035485876(1) dated 11/09/2021.
Brief facts of the case are that during the assessment proceedings the Ld. AO sought explanation from the assessee why the tax audit report U/s. 44AB of the Act was not filed for the AY 2017-18 at the time of filing of return of income. In response to the above notice, the assessee has not submitted any explanation but uploaded the audit report dated 30/10/2017 through e- proceedings module. The Ld. AO on verification of the e-filing portal found that the assessee has not filed tax audit report U/s. 44AB of the Act for the AY 2017-18 till the date of assessment order. Therefore, the Ld. AO considered the filing of audit report through e-proceedings is an afterthought and hence initiated the penalty proceedings U/s. 271B of the Act for non-submission of the audit report and levied penalty of Rs. 1,50,000/- being one half percent of the total gross turnover of Rs. 11,48,54,810/-.
Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A)-NFAC. Considering the submissions of the assessee, the Ld. CIT(A)-NFAC confirmed the penalty order of the Ld. AO and dismissed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee is in appeal before us by raising the following grounds:
“1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts of the case.
2. The Ld. CIT(A) is not justified in sustaining the penalty of Rs. 1,50,000/- levied by the Assessing Officer U/s. 271B of the Act.
3. The Ld. CIT(A) ought to have held that the case of the appellant falls within the scope of reasonable cause as provided U/s. 273B of the Act. 4. Any other grounds may be urged at the time of hearing.”
The only issue raised in this appeal is with respect to penalty U/s. 271B of the Act wherein the assessee has submitted that it has provided a reasonable cause as contemplated U/s. 273B of the Act. Before us, the Ld. AR argued that the tax audit report was filed by the assessee through online but while selecting the Assessment Year, the assessee has wrongly selected the AY 2016-17 instead of AY 2017-18. The assessee in its paper
9 book page 14 has filed the copy of the uploaded tax audit report.
The Ld. AR also submitted the screen shot of the audit report uploaded wrongly in the Income Tax Portal. The Ld. AR also submitted that the Form 3CD was prepared and signed on 30/10/2017 and a copy of which has been produced before us in the paper book pages 1 to 13. The Ld. AR therefore pleaded that it is a bonafide mistake made by the assessee while uploading the tax audit report and pleaded that the penalty may please be deleted.
Per contra, the Ld. DR relied on the orders of the Ld.
Revenue Authorities and fully supported the same.
We have considered the rival submissions and perused the material available on record. Admittedly, the Revenue has not disputed the date of audit report prepared by the assessee for the AY 2017-18. Further, we also find from the paper book filed before us wherein the assessee has submitted the audit report prepared for the earlier AY ie AY 2016-17 dated 17/10/2016. In paper book page 14, the assessee has also submitted the screen shot of the Form 3CB and Form 3CD filed by the assessee wherein it can be found that the tax audit report is dated 30/10/2017 for the AY 2016-17. We therefore find merit in the 10 arguments of the Ld. AR that the assessee has mistakenly selected the AY 2016-17 instead of selecting the AY 2017-18.
Section 271B of the Act can be invoked only if an assessee fails to get its accounts audited in respect of any Previous Year relevant to the Assessment Year. For the sake of brevity, section 271B is extracted below:
“Sec. 271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one- half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less.”
In the instant case, the Revenue has not disputed the audit report dated 30/10/2017 but the only contention of the Revenue is that it has not been uploaded in the Income Tax Portal. From the submissions of the Ld. AR we find that the assessee has wrongly uploaded the Form 3CD by selecting the earlier AY 2016- 17 instead of selecting the AY 2017-18. Hence, we are of the considered view that the assessee has complied with the provisions of section 44AB by getting its accounts audited and therefore the penalty U/s. 271B of the Act cannot be levied in the instant case for failure to upload the tax audit report U/s. 44AB
11 of the Act for the relevant assessment year. We therefore direct the Ld. AO to delete the penalty levied U/s. 271B of the Act and thereby allow the appeal of the assessee.
In the result, appeal of the assessee is allowed.
Ex-consequenti, is allowed.
Pronounced in the open Court on 13th September, 2023.