2023 (7) TMI 732

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....AS was due to bona-fide reasons as explained during the assessment proceedings and due to volume of contract receipts from various sites and from various parties the mistake had occurred and income was under reported by that amount which is only 0.20% of gross contract receipts of Rs.27,14,97,374/-. Hence, bona- fides as explained by the appellant should have been accepted and penalty under Section 271(1)(c) should not have been levied nor sustained by the learned CIT(Appeals). 1.2 The learned CIT(A) erred in sustaining the penalty in respect of disallowance of otherwise genuine expenditure under Section 40A(3) of the Act. As per settled law penalty under section 271(1)(c) is not leviable in respect of disallowance of an item of expenditure. 1.3 The learned CIT(A) further erred by sustaining penalty in respect of disallowance aggregating to Rs.10,69,021/- under section 36(1)(va) of the Act. Learned CIT(A) was ought to have considered the fact that appellant had deposited the employee's contribution to PF & ESI before due date of return of income under section 139(1) and accordingly deduction was otherwise allowable under Section 43B in the opinion of the appellant....

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.... to the returned income which were subject to appeal before the first and second appellate authority. Details of additions made to the returned income and decision of CIT (Appeals) and ITAT are as under; Sr.No. Grounds of Addition Amount (Rs) Decision of CIT (Appeal) Decision of ITAT 1 Difference between contract receipts as per books of accounts and as per 26AS statement 5,62,893 Sustained Sustained 2 Disallowance under s. 40A (3) of the Act for vehicle expenses 54,010 Not Pressed in Appeal N.A. 3 Disallowance under s. 40A(3) for cash payment for purchase gold ornaments 87,436 Deleted N.A. 4 Disallowance under s. 36(1)(va) for delay in deposit of EPF 10,69,021 Sustained Sustained 1.5 Learned A.O., after the order of the Honourable ITAT, issued SCN for levy of penalty under section 271(1)(c) of the Act in respect of sustained additions. 1.6 Appellant, through his submission dated 26/02/2022, submitted the explanations, in detail, against levy of penalty under s. 271(1)(c) of the Act in respect of the sustained additions to the returned income. It was pleaded by the appellant that considerin....

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.... the I.T. Act. The contentions of the assessing officer, as above, clearly proves that he failed to bring on record any findings about the manner in which appellant had provided inaccurate particulars of income so as to make him liable to penalty under s. 271(1)(c) of the Act. As per reasoning at para 6 of the penalty order, as above, learned A.O. have further contended as under; "6...............................The finding of the assessing Officer in the assessment order, the finding of the Ld.CIT(A) and the finding in the appellate order also clearly prove that the assessee has furnished inaccurate particulars of income and it is a fit case for imposition of penalty u/s. 271(1)(c) of the I.T. Act." From the observations of the learned A.O., as above, it is clear that he has solely relied on the findings in the assessment and appellate orders which were related to the allowability of expenditure claimed by the appellant in the return of income. Whereas, penalty proceedings, as per settled law, is distinct from assessment proceedings and there should be independent findings about concealment of income or about furnishing of inaccurate particulars....

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.... the fact that non-disclosure of contract receipts aggregating to Rs.5,62,893 was due to bona-fide reasons and appellant had, during the assessment, agreed for the said addition to buy the peace. Hence, it is most humbly requested to delete the penalty levied in respect of said additions of Rs.5,92,83. 2.3 Ground No. 1.2 2.3.1 Penalty in respect of disallowance of Rs.54,010 under s. 40A(3) of the Act- Reg... 2.3.2 During the year, appellant had incurred expenditure on vehicle repairing of Rs.54,010 for which payment was made in Cash. Since, cash payment above Rs.20,000 was in violation of provisions of section 40A(3) of the Act, same was disallowed by the assessing officer on agreed basis. 2.3.3 Appellant have to submit that expenditure is otherwise genuine one and only due to payment of cash, in violation of provisions of s. 40A(3) of the Act, same has been disallowed. There was not concealment of income nor appellant had provided inaccurate particulars of income to conceal the income. The addition to the returned income has been made by invoking provisions of s. 40A(3) of the Act in respect of expenditure which was otherwise accepted as genuine....

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....e appellant, solely on the ground that first and second appellate authority had dismissed the appeal of the appellant in respect of said disallowance. 2.4.3 Appellant have to submit that assessment proceedings and penalty proceedings are wholly distinct from each other. Merely because additions are made to the returned income, and sustained by the appellate authority, does not automatically give jurisdiction to the A.O. to levy penalty under section 271(1)(c) of the Act. Penalty under section 271(1)(c) is levied in the case of either concealment of income or in the case of providing inaccurate particulars of income. As per the assessment order, learned A.O. initiated penalty, in respect of the said disallowance, on the ground of providing inaccurate particulars of income. From the perusal of the penalty order it is clear that learned A.O. failed to substantiate his ground that appellant had provided inaccurate particulars of income. Sole ground for levying penalty is that appellate authorities have sustained the disallowance under s. 36(1)(va) made in the assessment order. Further, fact remains that addition by way of disallowance has been made due to del....

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....ion 43B for pre- amendment period. Some of the judgments of Tribunals, after amendment to s. 36(1)(va) and 43B, in favour of the assessee for pre-amendment period are as under; ITAT Citation ITAT, Chandigarh Sandhu Automobiles Pvt. Ltd. Vs. DCIT [65 CCH 0063] Lucknow Tribunal Premier Car Sales Ltd. Vs. ACIT [65 CCH 0054] Jaipur Tribunal Taj Granites Pvt. Ltd. & Anr. Vs. DCIT [65 CCH 0052] Chandigarh Tribunal DCIT & Anr. Vs. Madhubala & Anr [65 CCH 0049] 2.4.7 From the perusal of the decision of various courts and tribunals, as above, it is clear that issue whether delay in deposit of employees contribution to PF & ESI is otherwise allowable or not as per the provisions of section 43B of the Act is highly debatable considering the divergent views and decisions of different courts and tribunals. It is settled law that penalty under section 271(1)(c) of the Act shall not be levied in the case of debatable issues. Appellant relies on the decision of jurisdictional courts as under : Accura Enterprise Pvt. Ltd. Vs. Deputy Commissioner of Income-tax 65 CCH 0351 Ahd Trib Date : Jul 20,2022 Gujarat State Roa....