2016 (4) TMI 560 - HC - Income Tax

High Court rules against ITAT, restores CIT(A) decision on penalty under Income Tax Act

Nayan C. Shah Versus Income Tax Officer

The High Court of Gujarat held that the Income Tax Appellate Tribunal was not justified in reversing the CIT(A)'s decision and restoring the penalty ... Penalty u/s 271(1)(c) - non deduction of tds - Held that:- The assessee has made a claim of expenditure in relation to the payments made, which he may not have been entitled to claim in view of the provisions of section 40(a)(ia) of the Act, as tax on part of such amount had not been deducted at source and deposited in the Government account before the due date for filing return income. However,merely submitting an incorrect claim in law for the expenditure would not amount to furnishing inaccurate particulars of income. See Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., (2010 (3) TMI 80 - SUPREME COURT ) - Decided in favour of assessee. Issues Involved:1. Justification of the Income Tax Appellate Tribunal's reversal of the Commissioner of Income Tax (Appeals) decision and restoration of the Assessing Officer's penalty order under section 271(1)(c) of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Justification of the Tribunal's Reversal of CIT(A) DecisionThe appeal under section 260A of the Income Tax Act, 1961, challenges the Tribunal's order dated 07.03.2012, which reversed the CIT(A)'s decision and restored the penalty levied by the Assessing Officer under section 271(1)(c) of the Act. The substantial question of law is whether the Tribunal was justified in doing so.Assessment Proceedings and Penalty InitiationThe assessee, a partnership firm engaged in construction, was found to have violated provisions of section 40(a)(ia) of the Act during assessment proceedings. The Assessing Officer noted that tax deducted at source (TDS) from certain labour payments was not deposited into the Government account as required under section 200(1). Consequently, an addition of Rs. 13,20,588/- was made to the assessee's total income, and penalty proceedings were initiated under section 271(1)(c).CIT(A)'s FindingsThe CIT(A) allowed the appeal, noting that TDS of Rs. 6,18,300/- was deposited before the due date for filing returns and was covered by a Tribunal decision. For the remaining amount, the CIT(A) observed that the TDS was deposited in the subsequent year and deemed the breach technical, thus deleting the penalty.Tribunal's DecisionThe Tribunal reversed the CIT(A)'s decision, holding that the assessee had suppressed actual particulars of income by not making disallowance under section 40(a)(ia), thereby justifying the penalty.Arguments by the AppellantThe appellant argued that the default was technical and venial, emphasizing that the entire exercise was revenue neutral due to a uniform tax rate of 30%. The appellant referenced a previous court decision (Commissioner of Income Tax IV v. L. G. Chaudhary) to argue that the disallowance due to non-payment of TDS was a technical default, not warranting penalty under section 271(1)(c).Arguments by the RespondentThe respondent contended that the appellant did not disclose the non-deduction and non-payment of TDS, which was discovered during assessment. The respondent maintained that the assessee furnished inaccurate particulars of income, justifying the penalty.Court's AnalysisThe court noted that the disallowance was due to non-payment of TDS and was discovered during assessment proceedings. However, it emphasized that merely submitting an incorrect claim in law does not amount to furnishing inaccurate particulars of income, referencing the Supreme Court decision in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd.Tribunal vs. Assessing Officer's Grounds for PenaltyThe court highlighted the inconsistency between the grounds for penalty by the Assessing Officer (furnishing inaccurate particulars) and the Tribunal (suppression of actual particulars). It reiterated the requirement for the Assessing Officer to specify the default clearly in the notice under section 271(1)(c).ConclusionThe court concluded that the breach was technical and venial, upholding the CIT(A)'s view. It set aside the Tribunal's order and restored the CIT(A)'s order, deleting the penalty. The question was answered in favor of the assessee, and the appeal was allowed.Summary:The High Court of Gujarat held that the Income Tax Appellate Tribunal was not justified in reversing the CIT(A)'s decision and restoring the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The court found that the breach was technical and venial, and merely submitting an incorrect claim does not amount to furnishing inaccurate particulars of income. The Tribunal's order was set aside, and the CIT(A)'s order deleting the penalty was restored.