2015 (11) TMI 4 - AT - Income Tax

Penalty u/s.271(1)(c) - AO observed that the assessee firm had not furnished the audit report U/s.44AB - Held that - Assessing Officer has not heeded to the request of the assessee to while invoking the provisions of Section.44AF of the Act with respect to its actual turnover. It appears that AO had computed 5% of the turnover declared in the return of income or admitted by the assessee whichever is higher. On this issue, considering the facts and circumstances of the case, we are of the considered view that, the Ld. Assessing Officer should have computed 5% of the turnover on the actual turnover admitted by the assessee irrespective of the amount declared in the return of income because the claim of the assessee appears to be genuine. Therefore, we hereby direct the Ld. Assessing Officer to compute 5% of the turnover as admitted by the assessee and not as declared by the assessee in its return of income. Further, we find that the assessee has claimed interest paid to its partners as allowable deduction in accordance with Section 44AF(2) of the Act. The Ld. CIT (A) has not examined this issue in detail but brushed aside the claim of the assessee by stating that no evidence is available before him to establish that the interest has been actually paid to the partners. On this issue, we are of the considered view that one more opportunity should be provided to the assessee to furnish the evidence in regard to the payment of the interest to its partners and accordingly we remit the matter back to the file of the Ld. Assessing Officer to examine the scope of the applicability of Section 44AF(2) of the Act and to pass appropriate order as per merit and law. The assessee will not be liable to penalty U/s.271(1)(c) because the assessee had voluntarily filed the return of income though beyond the time limit prescribed U/s.139(4) of the Act. Only due to the filing of the return of income by the assessee the Revenue became aware of the assessee s case and sprung into action to assess the income of the assessee invoking various provisions under the Act. From the facts and circumstance of the case we are also of the view that adverse inference need not to be drawn on the bona fide act of the assessee for filing the return of income thought beyond the time prescribed U/s.139(4) of the Act, when no other adverse facts emerge. Further we are of the considered view that this is not a case where the assessee has concealed its income or furnished inaccurate particulars of income. In these situation, we hereby direct the AO to delete the penalty levied by him which was further confirmed the Ld. CIT (A). - Decided partly in favour of assessee.

Summary

Issues involved:
1. Quantum appeals regarding the invocation of section 44AF of the Income Tax Act and deduction of interest on fixed capital.
2. Penalty appeals under section 271(1)(c) of the Income Tax Act for concealment of income and furnishing inaccurate particulars.

Quantum Appeals:
In the quantum appeals, the main issue was the invocation of section 44AF of the Income Tax Act and the deduction of interest on fixed capital. The assessee challenged the orders of the Commissioner of Income Tax (Appeals) confirming the Assessing Officer's decision. The Assessing Officer computed the income of the assessee at 5% of the turnover under section 44AF due to the failure to maintain books of accounts. The Commissioner upheld this decision, stating that interest on capital should be allowable only if actually paid to partners. The Tribunal found no infirmity in the orders but directed the Assessing Officer to compute 5% of the turnover based on the actual turnover admitted by the assessee. Additionally, the Tribunal allowed the assessee to provide evidence of interest paid to partners for deduction under Section 44AF(2) and remitted the matter back to the Assessing Officer for further examination.

Penalty Appeals:
Regarding the penalty appeals under section 271(1)(c) of the Income Tax Act, the Assessing Officer and the Commissioner had levied penalties for concealment of income and furnishing inaccurate particulars. However, the Tribunal held that the assessee voluntarily filed the income tax return beyond the prescribed time limit, leading to the Revenue's assessment actions. The Tribunal concluded that no adverse inference should be drawn against the assessee for filing late, especially when no other adverse facts emerged. It was determined that there was no concealment of income or furnishing of inaccurate particulars by the assessee. Consequently, the Tribunal directed the Assessing Officer to delete the penalties imposed, which were confirmed by the Commissioner.

In summary, the Tribunal partially allowed the quantum appeals by directing adjustments in the computation of income under section 44AF and allowing the assessee to provide evidence for interest deduction. Furthermore, the Tribunal allowed the penalty appeals, ruling in favor of the assessee due to the voluntary filing of tax returns and the absence of concealment or inaccurate particulars in the income reporting.