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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
Per Dr. M. L. Meena, A.M.:
Both the appeals have been filed by the assessee against the impugned order dated 15.02.2019 passed by the Ld. Commissioner of Income Tax (Appeals), Bathinda in respect of the Assessment Years
2007-08 & 2008-09.
2 ITA Nos. 337& 338/Asr/2019 Gulzar Singh Gurbachan Singh v. ITO 2. The assessee has raised the following grounds of appeal in ITA No.
337/Asr/2019:-
“(a) That the order passed by Ld CIT (Appeals), Bathinda is highly erroneous & against the law and facts.
(b) That on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in confirming the penalty under section 271(1)(c ) of the Income Tax Act on disallowance made on a/c of shop expenses at Rs.64949/- as estimated basis whereas the appellant has claimed shop expenses at Rs.129898/- and the Ld. A.O. has allowed shop expenses @ 50%. The penalty has been upheld without appreciating that the appellant had maintained complete books of account and hence the confirmation of penalty is without any jurisdiction and liable to be deleted.
(c) That on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in confirming the penalty under section 271(1 )(c ) of the Income Tax Act on disallowance made on a/c of cash discount at Rs.22905/-. The penalty has been upheld without appreciating that the appellant had maintained complete books of account and hence the confirmation of penalty is without any jurisdiction and liable to be deleted.
(d) That the Ld CIT (Appeals), failed to appreciate that the assessment was framed under section 144 of the Income Tax Act and disallowance was made on technical grounds and the appellant is not guilty of concealment or furnishing of inaccurate particulars of income, therefore, the penalty under section 271(1) (c ) could not imposed and confirming of penalty U/s 271(1)(c ) on disallowance of shop expenses and cash discount is unjustified and liable to be deleted.
(e) That the appellant craves leave to add or amend any grounds of appeal before the appeal is heard off or disposed off.”
Grounds of appeal in ITA No. 338 /Asr/2019
“(a) That the order passed by Ld CIT (Appeals), Bathinda is highly erroneous & against the law and facts.
3 ITA Nos. 337& 338/Asr/2019 Gulzar Singh Gurbachan Singh v. ITO (b) That on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in confirming the penalty under section 271(1)(c) of the Income Tax Act on disallowance made on a/c of shop expenses at Rs.119114/- as estimated basis whereas the appellant has claimed shop expenses at Rs.238228/- and the Ld. A.O. has allowed shop expenses @ 50%. The penalty has been upheld without appreciating that the appellant had maintained complete books of account and hence the confirmation of penalty is without any jurisdiction and liable to be deleted.
(c) That on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in confirming the penalty under section 271(1)(c) of the Income Tax Act on disallowance of interest on various loans at Rs.159668/-. The penalty has been upheld without appreciating that the appellant had maintained complete books of account and hence the confirmation of penalty is without any jurisdiction and liable to be deleted.
(d) That the Ld CIT (Appeals), failed to appreciate that the assessment was framed under section 144 of the Income Tax Act and disallowance was made on technical grounds and the appellant is not guilty of concealment or furnishing of inaccurate particulars of income, therefore, the penalty under section 271(1) (c) could not imposed and confirming of penalty U/s 271(1)(c) on disallowance of shop expenses and cash discount is unjustified and liable to be deleted.
(e) That the appellant craves leave to add or amend any grounds of appeal before the appeal is heard off or disposed off.”
There is sole and common issue in both the appeals challenging the impugned orders of the Ld CIT (A) in confirming the penalty under section 271(1)(c) of the Income Tax Act on disallowance made out of shop expenses on estimated basis. Therefore, we decided to hear both the appeals together after hearing the Ld. Addl. CIT(DR) and disposed of by this common order for brevity.
The Ld. CIT (A) has confirmed the penalty under section 271(1)(c) of the Income Tax Act on disallowance made on a/c of shop expenses at
4 ITA Nos. 337& 338/Asr/2019 Gulzar Singh Gurbachan Singh v. ITO Rs.64949/- and Rs.119114/- against estimated disallowance made out of the appellant claim of shop expenses at Rs.129898/- and Rs.238228/- in respect of the Assessment Year 2007-8 and 2008-09 respectively by observing vide para 3.2 as under:
“3.2 I have given careful consideration to the facts of the case and find that the disallowance of salary/interest paid to the partners made by the Assessing Officer is not based on any concealment or furnishing of inaccurate particulars of income. In the assessment order passed under section 144 of Income Tax Act the AO has given reasoning that the appellant has failed to furnish any corroborative documents therefore the disallowance. This claim has been made by the partnership firm in the past also and in case of a partnership firm the claim is based on its status and partnership deed. The claim of payment of salary/interest to partners is not based on any vouchers or third-party confirmations. The claim is payable merely because of the status and its relationship with its partners. Even in the appellate proceedings it is merely mentioned that due to legal provisions contained in the Income Tax Act the disallowance was justified. In the circumstances, neither it constitutes concealment of income nor is it a case of furnishing of inaccurate particulars of income, therefore penalty under section 271(1) (c) of the Act cannot be levied. The Assessing Officer is directed to delete the penalty in respect of disallowance of salary/interest paid to the partners.
In respect of other to disallowances namely shop expenses and interest paid on loans the appellant failed to produce supportive documents. These expenses/claims are exclusively based upon production of supportive documents in the form of vouchers and also proving of the fact that these expenses are incurred for the purposes of business. The appellant failed to convince the Assessing Officer in respect of admissibility of these expenditures, therefore it amounts to furnishing of inaccurate particulars of income by claiming expenditure which has remained unsubstantiated. The penalty levied by the Assessing Officer in respect of disallowances of shop expenses and interest paid on loans was justified and hence sustained. The grounds of appeal are partly allowed.”
5 ITA Nos. 337& 338/Asr/2019 Gulzar Singh Gurbachan Singh v. ITO 6. The appellant objected to the confirmation of penalty u/s 271(1)(c) in the grounds of appeal by pleading that the penalty has been upheld without appreciating that the appellant had maintained complete books of account and hence the confirmation of penalty for adhoc and estimated disallowance of shop expenses is not justified and liable to be deleted; that the Ld CIT (A) had erred in confirming the penalty under section 271(1)(c) of the Income Tax Act on disallowance of interest on various without appreciating that the appellant had maintained complete books of account and hence the confirmation of penalty is without any jurisdiction and that the Ld CIT (Appeals), failed to appreciate that the assessment was framed under section 144 of the Income Tax Act and disallowance was made on technical grounds and the appellant was not proven guilty of concealment or furnishing of inaccurate particulars of income, therefore, the penalty under section 271(1) (c) could not imposed and confirming of penalty U/s 271(1)(c) on disallowance of shop expenses and cash discount is unjustified and liable to be deleted.
The Ld. Addl. CIT (DR) stands by the impugned orders. However, he has admitted the fact that the disallowance of shop expenses was on estimate basis@ 50% of such expenses claimed.
Having heard the Ld. Addl. CIT(DR), perusal of the impugned orders and considering the facts of the case, we are of the view that there is merit in the grievance of the assessee. Admittedly, the AO has disallowed 50% of shop expenses only on presumptions without establishing fully that the assessee has incurred shop expenses for
6 ITA Nos. 337& 338/Asr/2019 Gulzar Singh Gurbachan Singh v. ITO running its business activities. Even, if it is assumed for a moment that the assessee might have inflated shop expenses, it was not established that the amount of such shop expenses were less than that recorded in the books of account. Under these set of facts, it has to be held that the impugned addition has been made only on estimated basis that too on presumptions only.
It is settled principle of law that the purpose behind section 271(1) (c) is to penalize the assessee for concealment of particulars of income and/or furnishing inadequate particulars of such income. To our understanding, penalty cannot be imposed just for making incorrect claim in view of four principles laid down by Apex Court’s Judgment in “CIT vs Reliance Petroproducts Pvt Ltd”, [2010] 322 ITR 158 that-
Penalty its 271(1) (c) cannot be imposed merely because additions have been made. 2. A.O. must prove that there was concealment of income or the return of income furnished by assessee or documents submitted by assessee during scrutiny proceeding is based on incorrect fact, falsity and untruth. 3. For imposing penalty, the A.O need not prove the mental status of assessee. In other words, A.O need to prove that the assessee intentionally claimed incorrectly or submitted false information or filed incorrect details in return of income.
Imposition of penalty u/s 271(1) (c) does not depend on the issue whether the return pertains to income or loss. So even if there is loss return and no tax was levied after disallowance, penalty u/s 271(l)(c sustains.
Thus, the counsel argued in the written submission that Imposition of Penalty is not mandatory and Findings in assessment proceedings are relevant but not conclusive in penalty proceedings. In the case at hand,
7 ITA Nos. 337& 338/Asr/2019 Gulzar Singh Gurbachan Singh v. ITO the estimated disallowances made by the AO, out of shop expenses claimed as being incurred for the purpose of the functioning of business were not proved conclusively. Therefore, considering the peculiar facts of the case, the penalty levied u/s 271(1)(c) is not sustainable.
Following the decision rendered by the Rajkot Tribunal in the case of Anil Abhubhai Odedara vs. Income Tax Officer, Ward-3(1), IT APPEAL NO. 141/RJT/2018, dated 29/06/2020, [2020] 117 taxmann.com 490, we hold that the impugned penalties are liable to be deleted. Accordingly, we set aside the orders of Ld CIT(A) and direct the AO to delete the penalties Rs.64949/- and Rs.119114/- in respect of the Assessment Year 2007-8 and 2008-09 levied u/s 271(l)(c) of the Act.
In the result, both the appeals are allowed.
Order pronounced in the open court on 12.09.2022.
Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr.PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T. True Copy By Order