2014 (1) TMI 1072 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - All the details of the payments made by assessee to its sub-contractors have been disclosed in the return(s) filed but the disallowance has been made on the basis of particulars filed by assessee as the assessee failed to deduct TDS - Penalty u/s 271(1)( c) of the Act is leviable only if the person has concealed the particulars of his income or has furnished inaccurate particulars of such income as per the expression used in Clause (c) of sub-clause (iii) of section 271(1) of the Act - The offence of concealment is direct attempt to hide an item of income or derive thereof from the department to avoid payment of tax liability as per the provisions of Act - There should be an attempt on the part of the assessee to conceal the facts relating to its income or furnishing inaccurate particulars of income to avoid payment of tax - In assessee s case, nothing has been stated or brought on record by the department that the assessee had hidden the facts from the revenue authority or the details of payment received from the contractor or of payment made to sub-contractor - Nor there is any facts brought on record by the department that the payments claim to have been made by the assessee to sub-contractor and /or payments of rent were in any way bogus or inflated - Following CIT V/s Reliance Petroproducts (P.) Ltd 2010 (3) TMI 80 - SUPREME COURT - If the assessee has not concealed any material fact or the factual information given by him is not found to be incorrect, he will not be liable for imposition of penalty u/s 271(1)(c) of the Act, even if the claim made by him is unsustainable in law provided he substantiated the explanation offered by him or explanation even if not substantiated, is found to be bonafide - The provision of section 40(a)(ia) are deeming provision which creates legal fiction and that legal fiction cannot be extended beyond the disallowance of expenditure - It cannot be applied for invoking the provisions of section 271(1)(c) of the Act for levying penalty for concealment of income or furnishing inaccurate particulars of income - Decided in favour of assessee.

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Sections 194C and 194I.

Issue-Wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):

The primary issue in both appeals was whether the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961, was justified due to the disallowance made under Section 40(a)(ia) for non-deduction of TDS. The penalty was levied by the Assessing Officer (AO) on the grounds that the assessee furnished inaccurate particulars of income by making claims without deducting TDS as required under Sections 194C and 194I. The AO imposed a penalty at the rate of 100% of the tax sought to be evaded, amounting to Rs. 13,72,132/- for the assessment year 2007-08 and Rs. 32,81,147/- for the assessment year 2006-07.

The CIT(A) for the assessment year 2007-08 confirmed the AO's action, citing the Supreme Court's decision in Union of India v. Dharmendra Textiles Processor and ors., which held that penalty under Section 271(1)(c) is a civil liability and does not require mens rea. The CIT(A) also referenced the Delhi High Court's decision in CIT v. Zoom Communication, which justified penalty imposition for inaccurate computation resulting in less tax payment.

However, for the assessment year 2006-07, the CIT(A) canceled the penalty, stating that the assessee had furnished all material facts in the return and relied on the Punjab & Haryana High Court's decision in CIT v. Ajaib Singh & Company, which held that mere disallowance of expenditure does not amount to furnishing inaccurate particulars of income. The CIT(A) also referenced the Delhi High Court's decision in CIT v. AT & T Communication Services India (P) Ltd., which held that invoking Section 40(a)(ia) for disallowance should not lead to penalty under Section 271(1)(c).

2. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:

For both assessment years, the AO made disallowances under Section 40(a)(ia) due to the assessee's failure to deduct TDS as per Sections 194C and 194I. The disallowance for the assessment year 2007-08 was Rs. 40,76,447/-, and for the assessment year 2006-07, it was Rs. 97,47,913/-. The disallowances were made on the basis that the assessee did not deduct TDS on payments made to sub-contractors and machinery rent.

The Tribunal noted that the assessee had disclosed all details of payments made to sub-contractors in the returns filed, and the disallowance was made due to a technical fault and legal fiction created by Section 40(a)(ia). The Tribunal observed that the assessee paid the TDS in subsequent assessment years, and the deduction was allowed by the department. It was also noted that the disallowance was not due to any bogus or inflated claims.

The Tribunal referenced the Supreme Court's decision in CIT v. Reliance Petroproducts (P.) Ltd., which held that mere making of a claim not sustainable in law does not amount to furnishing inaccurate particulars of income. The Tribunal also cited the Jurisdictional High Court's decision in CIT v. Aditya Birla Nova Limited, which held that incorrect claims in law do not amount to furnishing inaccurate particulars if all material facts are disclosed.

Conclusion:

The Tribunal held that the levy of penalty under Section 271(1)(c) was not justified as the assessee had disclosed all material facts, and the disallowance was made due to non-compliance with TDS provisions, which was a technical fault. The Tribunal upheld the CIT(A)'s order for the assessment year 2006-07, canceling the penalty, and reversed the CIT(A)'s order for the assessment year 2007-08, allowing the assessee's appeal.

Result:

The department's appeal for the assessment year 2006-07 was dismissed, and the assessee's appeal for the assessment year 2007-08 was allowed. The order was pronounced in the open court on December 11, 2013.

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