2015 (12) TMI 613 - AT - Income Tax

Penalty under section 271(1)(c) - undisclosed payments - Held that - The assessee has made payment of ₹ 70,000/- to Shri Dinesh Jethwa, meaning thereby, this party is a genuine party, it has relation with the assessee, otherwise has no occasion to make a payment of ₹ 70,000/- also. The assessee failed to substantiate the remaining payment. Therefore, in our opinion, the assessee has an explanation, which cannot be proved as a false by the AO. It is a different matter that the assessee failed to substantiate its explanation. This aspect is to be appreciated in the light that the AO has disallowed sub-contract expenses of ₹ 3,41,38,500/-. The ld.CIT(A) has only upheld the disallowance of ₹ 87,35,038/- which has been further reduced to ₹ 86,643/- by the Tribunal. In view of the above facts, the assessee does not deserve to be visited with penalty on this issue. As far as second amount is concerned, the ld.AO has made an ad hoc disallowance at 10% of the total administrative expenses. He disallowed a sum of ₹ 73,31,295/-. Out of which, the disallowance upheld by the CIT(A) is ₹ 5,33,909/-. It is an estimated disallowance from a payment of ₹ 7.33 crores. This amount has been disallowed for the reason that complete bills and vouchers could not be produced by the assessee. In our opinion, genuineness of the assessee s claim to the extent of 99% was not in doubt. Therefore, on this ad hoc disallowance, the assessee should not be visited with penalty his explanation is, otherwise, not false. In view of the above discussion, we allow the appeal of the assessee and delete the penalty. - Decided in favour of assessee.

Summary

Issues: Appeal against penalty under section 271(1)(c) of the Income Tax Act for the Assessment Year 2005-06.

Analysis:
1. The assessee appealed against the penalty imposed under section 271(1)(c) of the Income Tax Act. The grievance was that the ld.CIT(A) confirmed the penalty of &8377; 38,07,784/-. The assessee, engaged in construction projects, filed its return declaring a total income of &8377; 45,94,650/-, which was scrutinized, and additions were made.

2. The major additions made by the AO were either deleted by the CIT(A) or the ITAT, leaving only two additions of &8377; 86,643/- and &8377; 5,33,909/- for penalty consideration. The Tribunal partially allowed the assessee's appeal. The penalty under section 271(1)(c) involves concealment of income or furnishing inaccurate particulars, with penalties ranging from 100% to 300% of the tax sought to be evaded.

3. The deeming provisions of Explanation 1 to section 271(1)(c) cover situations where the assessee fails to offer a genuine explanation or fails to substantiate it. In the present case, the first ground for penalty was an addition of &8377; 86,643/- related to subcontract payments. The assessee made a payment of &8377; 70,000/- to one party, which was considered genuine, but failed to substantiate the remaining amount. The Tribunal found the explanation genuine and deleted the penalty.

4. The second ground for penalty was an ad hoc disallowance of administrative expenses. The disallowance was based on incomplete documentation, but the genuineness of the claim was not in doubt. The Tribunal held that the penalty should not be imposed as the explanation was not false. Consequently, the appeal of the assessee was allowed, and the penalty was deleted.

In conclusion, the ITAT Ahmedabad allowed the appeal of the assessee against the penalty imposed under section 271(1)(c) for the Assessment Year 2005-06, considering the genuine nature of the explanations provided by the assessee regarding the disputed additions.