2014 (6) TMI 103 - AT - Income Tax

Deletion of penalty u/s 271(1)(c) of the Act Payment as labour charges made disallowed u/s 40A(2)(b) of the Act Quantum addition deleted - Held that - The quantum addition has been deleted by the Tribunal - thus, the penalty for the year does not survive - the assessee had not preferred an appeal before the Tribunal, but still mere not filing of an appeal before the Tribunal do not alter the legal position in respect of the invocation of the provisions of Section 40A(2)(b) as decided by the Respected Co-ordinate Bench in the past years in favour of the assessee - the facts relating to the payment of labour charges to the concern were very much on record and the genuineness was not doubted by the AO but only held that the payment was unreasonable estimation at 15% being made merely on estimation do not attract the penal provisions the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues:
1. Deletion of penalty under section 271(1)(c) of the IT Act based on excessive and unreasonable payment of labour charges.

Analysis:
The appeal filed by the Revenue challenged the deletion of penalty amounting to Rs.5,43,426/- under section 271(1)(c) of the IT Act. The dispute arose from the assessment order where the Assessing Officer (AO) disallowed Rs.16,14,458/- as labour charges paid by the assessee company to a specific entity under Section 40A(2)(b) of the IT Act. The AO deemed the payment excessive and unreasonable, leading to the penalty imposition.

The First Appellate Authority, the CIT(A), upheld the AO's decision. However, the ITAT 'D' Bench Ahmedabad had previously ruled in favor of the assessee in similar cases for A.Ys. 2004-05 and 2005-06. The ITAT held that the burden of proof regarding excessive or unreasonable payment lies with the Revenue, and in the absence of evidence, the addition was deleted. The CIT(A) considered this precedent and directed the deletion of the penalty.

Upon review, the ITAT Ahmedabad concurred with the CIT(A) based on the past decisions favoring the assessee. The Tribunal emphasized that the penalty was not warranted as the addition was made on estimation without concrete evidence of concealment. The genuineness of the payment was acknowledged, and the penalty provision was deemed inapplicable. The Tribunal affirmed the CIT(A)'s decision to delete the penalty, citing the lack of grounds for penalty imposition due to the estimation nature of the addition.

In conclusion, the ITAT upheld the deletion of the penalty, considering the consistent rulings in favor of the assessee in similar cases and the absence of concrete evidence supporting the penalty imposition. The Tribunal dismissed the Revenue's appeal, emphasizing the lack of grounds for penalty under section 271(1)(c) of the IT Act in this scenario.