ITA No. 972/Chd/2013; Asst. yr. 2006-07

Bhavnesh Saini, J.M. & T.R. Sood, AM.

Maryit Singh, for the Appellant:
Parikshit Aggarwal, for the Respondent

ORDER-BHAVNESH SAINI. J.M. :

This appeal by Revenue is directed against the order of learned CIT(A), Chandigarh dt. 1st July, 2013 for asst. yr. 2006-07 challenging the cancellation of penalty under s. 271(1)(c) of the Act.

2. The brief facts of the case are that following additions were made and subsequently upheld by Hon'ble Tribunal. Chandigarh in this case:

3. The AO had initiated penalty proceedings on all the above additions at the time of assessment. In the penalty proceedings, the assessee had filed a reply, but the AO was not satisfied with the explanation and has levied minimum leviable penalty under s. 271 (l)(c) of the Act after discussing all the above issues and has mentioned as under on the last page of the penalty order:

"On account of above, I am satisfied that the assessee has furnished inaccurate particulars of income by claiming wrong deduction wilfully assessee even did not file the appeal on this issue. Assessee was aware that it had not deducted tax at source and therefore the expense was not admissible to it as per the provisions of s. 40(a)(ia) of the IT Act, 1961. Still the assessee wilfully claimed the expense in its P&L a/c and thereby furnished inaccurate particulars of income which is liable to penal action under s. 271(l)(c) of the IT Act. Therefore penalty under s. 271(I)(c) is imposed as under:
The quantum of penalty is as follows :

4. The assessee challenged the penalty order before learned CIT(A) and it was submitted that the AO had discussed in the penalty order that the penalty is to be levied only in respect of the addition made on the disallowances under s. 40(a}(ia), but has levied penalty for concealment of the entire addition confirmed by the Tribunal. The assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT us. Reliance Petroproducts (P) Ltd. (2010) 230 CTR (SC) 320 : (2010) 36 DTR (SC) 449 : (2010) 322 ITR 158 (SC), decision of Hon'ble Punjab & Haryana High Court in the cases of CIT us. Sidharath Enterprises (2010) 228 CTR (P&H) 579 : (2010) 322 ITR 80 (P&H) and CIT us. Haryana Warehousing Corporation (2009) 226 CTR (P&H) 124: (2009) 25 DTR (P&H) 194: (2009) 314 ITR 215 (P&H).

5. The learned CIT(A) considering submission of the assessee, cancelled the penalty. His findings in paras 5 and 6 of the appellate order are reproduced as under:

"5. I have considered the submission of the learned counsel. As per the provisions of s. 271 (1}(c), penalty can be levied, if the assessee has concealed particulars of his income or furnished inaccurate particulars of such income. For the sake of ready reference, Expln. 1 below s. 271(1) is reproduced below;

'Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act,-

(A) such person fails to offer an explanation or offers an explanation which is found by the AO or the CIT(A) or the CIT to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material t9 the computation of his total income have been disclosed by him,

then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of cl. (c) of this sub-section, be deemed to represent the income in respect of which 'particulars have been concealed.'

5.1 Thus. when the assessee has concealed particulars of his income or furnished inaccurate particulars conditions laid down in Expln. 1 (supra) have to be examined. Regarding various disallowances under s. 40(a}(ia) made in respect of freight inward and freight outward repair and maintenance of cars and stitching of uniforms, etc., the appellant cannot be said to have deliberately furnished inaccurate particulars of income. Hon'ble Tribunal Delhi in the case of AT&T CommW1ications Services India (P) Ltd. us. Dy. CIT (2010) 42 D1R (Del)(Trib) 22 has held that the disallowance made by invoking provisions of s. 40(a)(i) cannot be a ground to levy penalty under s. 271(l)(c) since in such situations, it cannot be said that the assessee had failed to disclose fully and truly all material facts relevant to the deduction claimed by the assessee. Sec. 40(a)(i) pertains to payments made to non-residents and the corresponding provision for residents is s. 40(a)(ia) and so the ratio of this decision is applicable in respect of disallowance under s. 40(a)(ia) also. Further, the entire amount has been added under s. 40(a)(ia) for non-deduction of tax and the appellant has already been penalized by adding whole of the amount, on which tax was to be deducted. By respectfully following the decision of Hon'ble Tribunal Delhi (supra), the penalty, for concealment levied in respect of various disallowances made under s. 40(a)(ia) is cancelled.

5.2 From a perusal of the last para of the penalty order (reproduced in para 3.1 above), it is evident that the AO intended to levy penalty for concealment only in respect of disallowance under s. 40(a)(ia), but has computed the penalty on the entire addition confirmed by Hon'ble Tribunal. Hence, the penalty levied on additions other than under s. 40(a)(ia) also deserves to be cancelled.

5.3 In view of the above discussion, the penalty for concealment levied in this case is cancelled. All the grounds taken by the appellant are allowed.

6. In the result, the appeal is allowed."

6. The learned Departmental Representative relied upon order of the AO and submitted that if the case of the assessee would not have been taken up for scrutiny, no addition would have been made. Therefore, it is a case of concealment of income or furnishing of inaccurate particulars of income and relied upon decision of Delhi High Court in the case of CIT us. Zoom Communication (P) Ltd. (201 O) 233 CTR (Del) 465 : (2010) 40 DTR (Del) 249: (2010) 327 ITR 510 (Del).

7. On the other hand, learned counsel for the assessee has reiterated the submissions made before authorities below and submitted that learned CIT(A) correctly followed the decision of the Delhi Bench in the case of AT&T Communications Services India (P) Ltd. us. Dy. CIT (2010) 42 DTR (Del)(Trib) 22 and also submitted that assessee has disclosed all the particulars of income before the authorities below and disputed the claim of the AO. He has also filed order of the Hon'ble Punjab & Haryana High Court in the case of the same assessee for assessment year under appeal to show that the appeal of the assessee has been admitted against quantum addition . by Hon'ble Punjab & Haryana High Court on substantial questions of law. He has, therefore, submitted that since appeal of the assessee is pending before Hon'ble High Court, therefore, claim of assessee is bonaftde and penalty has been correctly cancelled.

8. We have considered the rival submissions and material available on record. The issue involved in the appeal is regarding cancellation of penalty on addition made on account of disallowance of expenditure under s. 40(a)(ia) of the Act. The assessee has disclosed the entire facts before the authorities below without concealing any income. The assessee made a claim of deduction in the return of income and explained the facts but the same were not accepted by the authorities below and additions have been confirmed. Therefore, it is a case of mere disallowance of expenditure without bringing any adequate material against assessee to prove that assessee has concealed the particulars of income or has furnished inaccurate particulars of income. The appeal of the assessee on substantial question of law with regard to disallowance under the provisions had been admitted by Han'ble Punjab & Haryana High Court. The Hon'ble Punjab & Haryana High Court in the case of CIT us. Haryana Warehousing Corporation (supra) held as under:

.. Held, dismissing the appeal. that the deduction claimed by the assessee was legitimate and bona fide in terms of the conflicting determination of law on the proposition in question. The categorical finding at the hands of the Tribunal in its order was that the assessee had disclosed the entire facts without having concealed any income. There was no allegation against the assessee that it had furnished inaccurate particulars of its income. The determination of the Tribunal had not been controverted even in the grounds raised in the appeal. The assessee was guilty of neither of the two conditions. Therefore, in the absence of two prerequisites postulated under s. 271(1)(c) it was not open to the Revenue to inflict any penalty on the assessee."

9. The learned CIT(A) considering the material on record correctly followed the decision of the Delhi Bench in the case of AT&T Communications Services (India) (P) Ltd. (supra) for cancelling the penalty against the assessee. The assessee made a bona fide claim of deduction of the expenditure even though it was not acceptable to the Revenue, would not lead to inference that assessee has concealed the particulars of income or filed inaccurate particulars of income. Nothing is brought on record if claim of assessee was incorrect-- in law or was mala fide· Therefore, decision relied upon by learned Departmental Representative is not applicable to the facts of the case.

10. Considering the above discussion, in the light of the findings of the learned CIT(A), we do not find any justification to interfere with the order of the learned CIT(A) in cancelling the penalty.

11. In the result, Departmental appeal stands dismissed .