2011 (6) TMI 816 - AT - Income Tax

Penalty Proceedings u/s 271(1)(c) - Assessee had understated the income by not deducting tax at source on certain payments made which attracts TDS and by not addition certain expenditure to total income on which TDS was made beyond due dates - Non deduction of TDS by the assessee was resulted in such disallowance of Expenditure u/s 40(a)(ia) - Penalty proceedings were initiated by AO HELD THAT - In our opinion, the mistake committed by the assessee was compensated by disallowing the expenditure. Further, the Revenue cannot penalise the assessee by levying penalty u/s 271(1)(c). In order to levy penalty u/s 271(1)(c), there has to be concealment of particulars of income of the assessee or the assessee must have furnished inaccurate particulars of its income. Present is not the case of concealment of income or it is not the case of Revenue that the assessee has furnished inaccurate particulars of income. The department has not found out that the assessee has furnished any factual incorrect information and the assessee is not guilty of furnishing of inaccurate particulars of income. In our opinion, the conditions laid down in section 271(1)(c) is not complied with. In our opinion, the conditions laid down in section 271(1) (c ) of the Act is not complied with. Being so, levy of penalty is not justified merely because the assessee has claimed certain expenditure that expenditure is not eligible in view of the provisions of section 40(a)(ia) and for that reason, expenditure is disallowed. Penalty cannot be levied for mere making of a claim of the expenditure which is not sustainable and deletion of penalty by the CIT(A) is justified. We place reliance on the judgement of the COMMISSIONER OF INCOME-TAX VERSUS RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT . Accordingly the ground raised by the revenue holds no merit.

Summary

Issues:
1. Disallowance of expenditure under section 40(a)(ia) of the Income Tax Act.
2. Penalty imposition under section 271(1)(c) for non-deduction of TDS.

Issue 1: Disallowance of Expenditure under Section 40(a)(ia) of the Income Tax Act:
The case involved an appeal by the Revenue against the order of the CIT(A) regarding the disallowance of expenditure under section 40(a)(ia) for the assessment year 2005-06. The Revenue contended that the assessee had understated income by not deducting tax at source on certain payments and not adding certain expenditures to total income beyond due dates. The Assessing Officer disallowed an amount under section 40(a)(ia) due to non-deduction of TDS on equipment hire charges and payments to a specific supplier. However, the CIT(A) deleted the penalty, stating that the disallowance of expenditure itself did not amount to concealment or furnishing inaccurate particulars of income. The Tribunal agreed, emphasizing that the penalty under section 271(1)(c) requires concealment or inaccurate particulars, which were not present in this case. The Tribunal relied on the Supreme Court judgment in CIT Vs. Reliance Petro Products (P) Ltd. to support the decision to delete the penalty, as the conditions for penalty imposition were not met.

Issue 2: Penalty Imposition under Section 271(1)(c) for Non-Deduction of TDS:
The Revenue initiated penalty proceedings under section 271(1)(c) due to the disallowance of expenditure under section 40(a)(ia) for non-deduction of TDS by the assessee. The Assessing Officer found that the assessee had failed to deduct TDS on certain payments, leading to the disallowance of expenditure. However, the Tribunal held that the failure to deduct TDS resulting in expenditure disallowance did not constitute concealment or furnishing inaccurate particulars of income. The Tribunal reasoned that penalizing the assessee for the disallowed expenditure was not justified under section 271(1)(c) as there was no concealment or inaccurate particulars involved. The Tribunal emphasized that the penalty provision requires specific conditions to be met, which were absent in this case. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the penalty imposed by the Revenue.

In conclusion, the Tribunal dismissed the Revenue's appeal, emphasizing that the disallowance of expenditure for non-deduction of TDS did not warrant penalty imposition under section 271(1)(c) as there was no concealment or furnishing of inaccurate particulars of income by the assessee. The decision was supported by the legal precedent cited from the Supreme Court judgment, highlighting the importance of meeting specific conditions for penalty imposition under the Income Tax Act.