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Issues involved: Appeal against cancellation of penalty u/s 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2006-07.
Summary: The appeal was filed by the Revenue against the cancellation of penalty amounting to Rs. 7,42,707/- u/s 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2006-07. The assessee, a firm engaged in construction and repair, had filed its return of income declaring total income at Rs. 1,18,323/-, which was later revised to Rs. 23,24,820/- by the Assessing Officer (A.O.). The A.O. disallowed Rs. 22,06,498/- under section 40(a)(ia) of the Act due to non-deduction of TDS from certain expenses. During the hearing, the Revenue contended that the assessee had concealed income by not deducting TDS as required by law, leading to the disallowance. However, it was argued that the assessee had produced all relevant accounts and audit reports, and the non-deduction of TDS may have been due to ignorance rather than intentional concealment. The Tribunal noted that the assessee had audited accounts under section 44AB, and the auditors did not point out any TDS defaults in the Tax Audit Report. It was observed that the assessee's explanation appeared bonafide, supported by the fact that the Chartered Accountant did not highlight the non-deduction of TDS. The Tribunal concluded that penalty u/s 271(1)(c) is not automatic and found the cancellation of penalty by the Commissioner of Income Tax(Appeals) to be legally and factually correct. Therefore, the Tribunal dismissed the appeal of the Revenue, upholding the cancellation of the penalty.
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