SS GROUP (P) LTD,HARYANA vs. ACIT CIRLCE-4(1), GURGAON, HARYANA

Further ld. AR of the assessee submitted a letter dated 06.11.2017 which was submitted before the AO wherein it was submitted that assessee has submitted details of expenses in tax audit report in contravention to section 40A(3). Expenses were already reported in the tax audit report but while filing the return, the same were not picked up by the software due to clerical mistake and the return was filed accordingly. He placed the abovesaid letter with the record to submit that all these details were already submitted before the AO.

On the other hand, ld. DR of the Revenue submitted that the letter presented by the ld. AR dated 06.11.2017 was never filed before the first appellate authority and he was not sure whether this letter is part of the assessment records. He submitted that in order to verify the same, it may be sent back to the AO to verify the above claim of the assessee. With regard to issue of goodwill, he agreed that the coordinate Bench has already decided the issue in favour of the assessee. With regard to levy of penalty on the violation of section 40A(3) of the Act, he relied on the findings of the lower authorities.

Considered the rival submissions and material placed on record. We observe that the AO has levied the penalty on two counts. On claim of deprecation on goodwill, the assessee has preferred an appeal before the ld. CIT (A) and subsequently before the ITAT. The coordinate Bench considered the detailed submissions and material placed on record and they have decided the issue in favour of the assessee. Since the above issue is decided in favour of the assessee, the relevant penalty levied on the above claim of depreciation on goodwill deserves to be deleted. Accordingly, penalty levied on the depreciation of goodwill is hereby deleted.

With regard to disallowance of expenditure u/s 40A(3)) of the Act, we observe that AO has already reproduced various expenses and relevant parties to whom the payments were made were already listed in assessment order itself. From the above details submitted by the assessee, we observe that the payees are already identified and genuineness of the transaction is not in doubt. We observe that ITAT, Ahmedabad Bench in the case of Ramchand Bhulchand Rajai (supra) has considered the similar issue in detail and held as under :- “13. We have considered the contentions of the ld. Counsel for the assessee and we find merit in the same ,that the mere disallowance of expenses u/s 40A(3) of the Act in the present case would not invite the levy of penalty for concealing or furnishing of inaccurate particulars of income. It is an undisputed fact that all particulars relating to payments made in violation of the provisions of Section 40A(3) of the Act were disclosed by the assessee in its Tax Audit Report filed in terms of section 44AB of the Act, along with the return of income. No discrepancy has been pointed out by the Revenue in the contention of the assessee that he harboured a bona fide belief that these payments having been made in compelling business circumstances, they fell in the exceptions to the provisions of Section 40A(3) as brought out in Rule 6DD of the Income-tax Rules, 1962. It is not the case of the Revenue that the explanation furnished by the assessee for bonafidely believing that these payments were excluded from the purview of Section 40A(3) of the Act were found to be false.

It is evident from the above that there was no concealment of the particulars of income relating to payments made in violation of Section 40A(3) of the Act by the assessee. We completely agree with the ld. Counsel for the assessee that it is simply a case of levying penalty on disallowance of claim of assessee, when the assessee admittedly had disclosed all particulars relating to the issue of payments made in violation of section 40A(3) of the Act and had also bonafidely believed the same as not covered under the said section.

The assessee we hold ,cannot be charged with having concealed or furnished inaccurate particulars of income so as to impose penalty u/s 271(1)(c) of the Act. Law in this regard is settled by the Hon’ble Apex Court in the case of Pricewaterhousecoopers Pvt. Ltd vs C.I.T, [2012] 348 ITR 306 (SC) wherein in identical set of facts where the assessee was noted to have disclosed all particulars of expense and the assesses explanation for not suo moto disallowing the same as being done by mistake, was found bonafide by the court, penalty levied u/s 271(1)(c) of the Act was deleted by the Apex court. Even otherwise, during the course of hearing before us, the ld. Counsel for the assessee drew our attention to the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Zoom Communication (P.) Ltd., reported in [2010] 327 ITR 510 (Delhi), which, he pointed out, though was relied upon by the Assessing Officer in the present case while levying penalty, it actually supported the assessee’s case. He drew our attention to the findings of the Hon’ble High Court in the said case holding that as long as the assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s 271(1)(c) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation even if not substantiated is found to be bona fide. The said decision we agree with the Ld. Counsel for the assessee supports the case of the assessee for levying no penalty.

Accordingly, we hold that the levy of penalty on the addition made on account of disallowance made u/s 40A(3) of the Act is not sustainable and we direct deletion of the same.”

Respectfully following the above decision, we are inclined to delete the penalty levied on the disallowance made u/s 40A (3) of the Act.