2012 (12) TMI 1217 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty u/s 271(1)(c) by CIT(A).
2. Justification of penalty for advance shown as purchases.
3. Justification of penalty for disallowance u/s 40(a)(ia).
4. Justification of penalty for non-disclosure in closing stock.

Summary:

Issue 1: Deletion of penalty u/s 271(1)(c) by CIT(A):
The Revenue appealed against the CIT(A)'s order deleting the penalty of Rs. 60,80,170/- levied by the Assessing Officer (AO) u/s 271(1)(c). The AO had imposed the penalty for furnishing inaccurate particulars of income by inflating expenses, non-adjustment of closing stock, and non-disallowance of expenses as per deeming provisions. The CIT(A) deleted the penalty, observing that the AO did not record why the explanation offered by the assessee was false and that the assessee had provided all relevant facts. The CIT(A) relied on judicial precedents, including the jurisdictional High Court decision in CIT vs S.I.Paripushpam [2001] 249 ITR 550 (Mad), holding that mere agreement for addition does not justify penalty.

Issue 2: Justification of penalty for advance shown as purchases:
The AO added Rs. 1.25 crores to the income, treating advances as purchases. The assessee explained that due to numerous mediators and confusion, advances were mistakenly booked as purchases. The CIT(A) accepted the explanation, noting that the assessee voluntarily brought the mistake to the AO's notice during assessment proceedings. The Tribunal upheld the CIT(A)'s decision, emphasizing that the conduct of the assessee during assessment proceedings is relevant for penalty u/s 271(1)(c).

Issue 3: Justification of penalty for disallowance u/s 40(a)(ia):
The AO disallowed Rs. 19,63,500/- for non-compliance with TDS provisions u/s 40(a)(ia). The CIT(A) deleted the penalty, noting that the expenditure was not found to be false or bogus. The Tribunal agreed, stating that penalty u/s 271(1)(c) cannot be imposed for a mistake in computational provisions if primary material facts are correctly furnished. This view was supported by judicial precedents, including CIT vs AT&T Communication Services India (P) Ltd. [2012] 18 taxmann.com 144 (Delhi).

Issue 4: Justification of penalty for non-disclosure in closing stock:
The AO added Rs. 22 lakhs for non-disclosure in closing stock. The assessee contended that the increased closing stock would offset against the income in the subsequent year. The Tribunal found that the lower authorities did not verify this contention. The Tribunal restored this issue to the AO for verification, stating that if the assessee's contention is correct, it cannot be held that the suppression was intended to evade tax.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, upholding the deletion of penalty for advances shown as purchases and disallowance u/s 40(a)(ia), while remanding the issue of non-disclosure in closing stock to the AO for verification.