2014 (9) TMI 935 - AT - Income Tax

Disallowance u/s 40(a)(ia) - non-deduction of TDS on freight & cartage - Penalty u/s 271(1)(c) - Held that - On the additions related to ₹ 87,321/- u/s 68 on account of unconfirmed share capital and unsecured loan, the ld. AR pleaded that confirmations for only a miniscule part of the share capital and unsecured loan could not be submitted merely because the copies of FIRCs from the bank could not be procured due to paucity of time. He also submitted that there was no mens rea on assessee s part, hence the penalty proceedings deserves to be dropped on these additions. We find that confirmation/evidence with regard to the share capital of ₹ 51,810/- against total share capital of ₹ 24,48,100/- and unsecured loans of ₹ 35,521/- against total loan of ₹ 35,23,925/- could not be filed due to paucity of time to procure the same. In view of these facts, we hold that only on meager amount, the assessee was not able to file the confirmations due to paucity of time. Therefore, in our considered view, no penalty u/s 271(1)(c) of the Act could be levied on such additions made to the income of the assessee, hence we order to delete the same. As regard to disallowance out of freight and cartage expenses for not deducing TDS, we hold that assessee was under statutorily obligation to deduct tax at source as per expressed provision of Section 194C of the Act as these were contractual payments. Assessee had not done so and claimed these expenses which are not deductible as per expressed provisions of Section 40(ia) of the Act. Assessee had claimed ex-facie not deductible expenses. In view of these findings, we hold that assessee is liable to levy penalty for claiming ex-facie not allowing expenses. By holding so, we find no fault in the levy of penalty on these additions.

Summary

Issues:
1. Disallowance of expenses and additions made by the Assessing Officer.
2. Penalty proceedings initiated under section 271(1)(c) of the Income-tax Act, 1961.
3. Appeal against the penalty order before the CIT (A).
4. Grounds of appeal raised by the assessee before the Appellate Tribunal.

Issue 1: Disallowance of expenses and additions:
The appellant, a manufacturing company, filed a return declaring a loss which was processed under section 143(1) of the Income-tax Act, 1961. Subsequently, during scrutiny, the Assessing Officer disallowed amounts from share capital, unsecured loans, customs duty expenses, and also made disallowances under section 40(a)(ia) for non-deduction of TDS on freight & cartage. The Assessing Officer initiated penalty proceedings under section 271(1)(c) based on these disallowances. The CIT (A) upheld the penalty order, leading to the appeal before the Appellate Tribunal.

Issue 2: Penalty proceedings under section 271(1)(c):
The Assessing Officer initiated penalty proceedings under section 271(1)(c) based on the disallowances made in the assessment. The penalty was imposed relying on judicial decisions. The appellant contended that there was no tax implication due to the net loss and that confirmations for a part of the disallowed amounts could not be submitted in time. The Appellate Tribunal held that due to the paucity of time, the appellant could not provide confirmations for a small portion of the disallowed amounts, leading to the deletion of penalties on those specific additions. However, penalties were upheld on disallowed customs duty expenses and expenses for not deducting TDS on freight & cartage.

Issue 3: Appeal against the penalty order before the CIT (A):
The appellant filed an appeal before the CIT (A) challenging the penalty imposed under section 271(1)(c). The CIT (A) decided the appeal ex-parte due to non-compliance by the appellant with hearing notices. The Appellate Tribunal upheld the decision of the CIT (A) to dismiss the appeal on this ground.

Issue 4: Grounds of appeal raised by the assessee before the Appellate Tribunal:
The grounds of appeal raised by the appellant before the Appellate Tribunal included challenging the ex-parte order passed by the CIT (A) and contesting the penalty imposed under section 271(1)(c). The Appellate Tribunal considered the arguments presented by both sides and made decisions on the penalty levied based on the disallowances made by the Assessing Officer.

This judgment highlights the disallowances and additions made by the Assessing Officer, the penalty proceedings initiated under section 271(1)(c), the appeal against the penalty order, and the grounds of appeal raised by the appellant before the Appellate Tribunal. The Appellate Tribunal considered the submissions of both parties and made decisions on the penalties imposed, deleting penalties on certain grounds but upholding penalties on specific disallowed expenses.