2019 (2) TMI 988 - AT - Income Tax

Tribunal waives penalty under Income Tax Act, stresses genuine explanation.

The Tribunal condoned the delay in filing the appeal, admitting it due to the non-deliberate nature of the delay. Regarding the penalty under section ... Levy of penalty levied u/s 271(1)(c) - disallowance under section 40(a)(ia) - unpaid VAT and service tax liability - unexplained cash credit under section 68 - Held that:- AO has made addition on the basis of facts as disclosed by the assessee in the return of income and during the course of assessment proceedings. Assessee has furnished all relevant facts; therefore, the penalty cannot be levied merely because that it was not acceptable to the AO. Where the explanation is bonafide and all the facts relating to the same have been disclosed, penalty is not leviable. In this case, the assessee has offered explanation during the course of assessment proceedings itself that there was no requirement for tax deduction and the assessee has not claimed the liability of service tax and MVAT as expenditure in the Profit & Loss Account therefore, disallowance under section 43B are not called for. The assessee has given the details that cash deposits were out of cash withdrawals made before two to fifteen days prior to cash deposits in bank account. However, even after making addition there was still income computed was Nil on account of set-off of brought forward business loss of earlier years. We find that payment of ₹ 51,738 made to M/s. Atharva Landscape included ₹ 3,738 for material and ₹ 48,000 for labour charges, hence, TDS was not required to be made. Similarly, payment of ₹ 32,700 made to M/s. Nirman Projects as consultancy charges, this amount included reimbursement expenses for travelling. Total payment of consultancy charges is at ₹ 29,700 and travelling charges at ₹ 2,700, hence, there was no requirement of deduction of TDS However; the AO has disallowed the same under section 40(a)(ia) of the Act. Even disallowance under section 40(a)(ia), does not amount to concealment of income as held by the Co-ordinate Bench of tribunal in the case of ACIT v. M/s. Medercity Online Pvt. Ltd. [2011 (5) TMI 977 - ITAT HYDERABAD] wherein it was held that where accounts of the assessee are audited and explanation has been offered relating to disallowance under section 40(a)(ia) of the Act, no penalty can be levied under section 271(1)(c) of the Act. Similarly, the assessee has not claimed the service tax and MVAT as expenses and delay in deposit with government account was not deliberate therefore, there is no question of any disallowance under section 43B of the Act. However, the AO has not accepted this explanation. Though provisions of section 43B is not applicable to service tax as held in Pharma Search v. ACIT [2012 (5) TMI 90 - ITAT MUMBAI]. Therefore, there was no question of any concealment of income or furnishing of inaccurate particulars of income. With regard cash deposits, we find that the AO has disbelieved this contention of the assessee by observing that there is gap between cash withdrawals and cash deposits and made addition of the same. However, this cannot be ground for addition as held in the case of Gordhan V. ITO [2015 (10) TMI 2479 - ITAT DELHI] wherein it was held that no addition can be made merely because there was time gap between cash withdrawals and cash re-deposits. Similarly, in the case of Jasbir Singh Saini v. ITO [2015 (7) TMI 1151 - ITAT CHANDIGARH] it was held that where in quantum appeal tribunal has accepted assessee`s explanation in respect of part of deposit and partly confirmed addition stating that explanation given by the assessee which was not convincing, it could not be said that the assessee has concealed the his income or furnished inaccurate particulars of income warranting of levy of penalty under section 271(1)(c). Non-filing of appeal against quantum addition does not mean that the assessee has concealed income of furnished inaccurate particulars of income. Just because Appellant’s explanation was not found acceptable by the AO, it does not follow that that the Appellant was unable to substantiate his explanation by providing various evidences and judicial opinions. Explanation 1 to section 271(1)(c) of the Act does not therefore cover the case of the Assessee. Based on the above facts of the case; it can be held that the Assessee had made all the necessary disclosures on a bonafide belief, which is not agreeable to the AO, it will not automatically lead to a case for penalty under section 271(1)(c) of the IT Act, 1961. - Decided in favour of assessee. Issues Involved:1. Condonation of delay in filing appeal before the Tribunal.2. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.Detailed Analysis:1. Condonation of Delay in Filing Appeal:The appeal was filed with a delay of 41 days. The assessee explained that the delay was due to the closure of its operations in India and the subsequent legal consultations which advised against paying the penalty demand. The assessee cited judgments from the Supreme Court, including Collector, Land Acquisition v. Mst. Katiji and N. Balakrishnan v. Krishnamurthy, to support the condonation of delay. The Tribunal acknowledged that the delay was not deliberate or intentional and condoned the delay, allowing the appeal to be admitted.2. Levy of Penalty under Section 271(1)(c):The assessee contested the penalty of Rs. 9,18,395 levied by the AO under section 271(1)(c) for various disallowances and additions made during the assessment. The key disallowances included:- Disallowance under Section 40(a)(ia): The AO disallowed Rs. 84,438 for non-deduction of TDS on labor and consultancy charges. The Tribunal found that the payments included amounts not subject to TDS and referenced the case of ACIT v. M/s. Medercity Online Pvt. Ltd., which held that such disallowances do not amount to concealment of income.- Disallowance under Section 43B: The AO disallowed Rs. 17,99,640 for late payment of service tax and MVAT. The Tribunal noted that these amounts were not claimed as expenses in the Profit & Loss Account and referenced cases like Pharma Search v. ACIT and DCIT v. M/s. M C Retail Pvt. Ltd., which held that unpaid VAT and service tax liabilities not debited to the Profit & Loss Account cannot be added back under section 43B.- Addition under Section 68: The AO added Rs. 10,90,000 as unexplained cash credit. The Tribunal found that the cash deposits were out of prior cash withdrawals, referencing cases like Gordhan V. ITO and Jasbir Singh Saini v. ITO, which held that no addition could be made merely due to a time gap between withdrawals and deposits.The Tribunal concluded that the assessee had provided a bona fide explanation and disclosed all relevant facts. The penalty could not be levied merely because the AO did not accept the explanations. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings, and findings in the assessment order are not conclusive for penalty imposition. The Tribunal also noted that the penalty show-cause notice did not specify the exact charge, making the penalty bad in law, referencing cases like CIT v. SSA's Emerald Meadows and Meherjee Cassinath Holdings (P) Ltd. v. ACIT.In light of the above, the Tribunal deleted the penalty of Rs. 9,18,395 and allowed the appeal of the assessee.Conclusion:The appeal was allowed, and the penalty levied under section 271(1)(c) was deleted. The Tribunal emphasized the importance of providing a bona fide explanation and full disclosure of facts, and it found that the assessee had met these requirements.