2013 (6) TMI 357 - AT - Income Tax

Tribunal Upholds Penalties for Tax Audit Report Delay, Freight Expenses Disallowed, Provident Fund Deduction Deleted

Himalyan Labour & Construction Coop Society Ltd. Versus DCIT. Mandi (HP)

Himalyan Labour & Construction Coop Society Ltd. Versus DCIT. Mandi (HP) - TMI Issues Involved:1. Confirmation of levy of penalty under Section 271B of the Income Tax Act.2. Disallowance of freight expenses under Section 40(a)(ia) of the Income Tax Act.3. Addition on account of Provident Fund deduction.Issue-wise Detailed Analysis:1. Confirmation of Levy of Penalty under Section 271B:The primary issue in ITA No. 1215/Chd/2011 pertains to the confirmation of a penalty amounting to Rs. 75,773/- under Section 271B of the Income Tax Act. The assessee had a turnover of Rs. 1,51,54,606/- and was required to get its accounts audited under Section 44AB of the Act and furnish the tax audit report. The assessee failed to furnish the tax audit report before the specified date, leading to the issuance of a show cause notice for the levy of penalty under Section 271B. The assessee contended that as per CBDT clarification, the tax audit report was not required to be attached with the return if filed within the stipulated period. However, the return was filed late, and the Assessing Officer levied a penalty of Rs. 75,773/-.The CIT(A) upheld the penalty, stating that the CBDT clarification applies only if the return is filed on or before the due date. The CIT(A) emphasized that the clarification by CBDT is to simplify the procedure for filing the return of income and does not substitute the substantive law/statute. The assessee's failure to furnish the audit report before the specified date led to non-compliance with Section 44AB, justifying the penalty. The Tribunal concurred with the CIT(A)'s interpretation, confirming that the requirement to furnish the tax audit report is independent and must be complied with, especially when the return is filed late. The appeal was dismissed as no reasonable cause was demonstrated by the assessee.2. Disallowance of Freight Expenses under Section 40(a)(ia):In ITA No. 1216/Chd/2011, the assessee raised multiple grounds, including the disallowance of Rs. 1,02,20,877/- out of freight expenses under Section 40(a)(ia) of the Income Tax Act. During assessment proceedings, the AO observed that the assessee was required to deduct TDS on payments made to various contractors but failed to do so within the stipulated time. The TDS was deducted in the subsequent financial year and deposited on 31.3.2009. Consequently, the AO made an addition under Section 40(a)(ia) for non-compliance with TDS provisions.The CIT(A) confirmed the addition, rejecting the assessee's argument that Section 40(a)(ia) does not apply if the expenditure is paid during the year. The Tribunal noted that the Special Bench decision in ACIT V. Merilyn Shipping & Transport, which limited the applicability of Section 40(a)(ia) to amounts payable at the end of the year, was overruled by the Gujarat High Court in CIT V. Sikandar Khan. The Tribunal, following the High Court's decision, upheld the applicability of Section 40(a)(ia) to both payable and paid amounts, thus deciding the issue against the assessee.3. Addition on Account of Provident Fund Deduction:The third issue involved the addition of Rs. 1,12,274/- on account of Provident Fund (PF) deduction. The AO noted that the assessee claimed this amount as PF deduction but failed to provide evidence of its deposit. The assessee argued that the PF was deducted by Abir Infrastructure Pvt. Ltd. and deposited by them, but no supporting details were furnished. The CIT(A) confirmed the addition due to the lack of evidence.Before the Tribunal, the assessee contended that an addition of Rs. 13,97,246/- had already been made on account of receivables from Abir Infrastructure Pvt. Ltd., which included the disputed PF amount. The Tribunal found merit in this argument, noting that since the total amount receivable from Abir Infrastructure Pvt. Ltd. was already considered by the AO, a separate addition of Rs. 1,12,274/- was unjustified. Consequently, the Tribunal deleted the addition.Conclusion:In conclusion, the Tribunal dismissed ITA No. 1215/Chd/2011, confirming the penalty under Section 271B. In ITA No. 1216/Chd/2011, the Tribunal partly allowed the appeal, upholding the disallowance under Section 40(a)(ia) but deleting the addition related to the Provident Fund deduction. The judgments were pronounced on 11.6.2013.