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2017 (4) TMI 1184 - AT - Income TaxPenalty imposed u/s 271(1)(c) - disallowance made u/s 40(a)(ia) - default relates to the timing of deduction of whether TDS should have been deducted at a time of credit in the ABA Pool Account or at a time of credit to the account of the individual ABA? - Held that - Liability to pay under the contract is a relevant consideration for determining the liability towards the TDS and only when such event happens, the TDS has to be deducted. The entries/credit in the books of account have therefore to be read taking into consideration the contractual obligations under the contract and cannot be read devoid of the same. Its a different matter that such explanation has not been accepted by the AO and by the ld CIT(A) while confirming the disallowance in the quantum proceedings. However, the said explanation continue to hold the fort and support the case of the assessee against non-levy of penalty for furnishing inaccurate particulars of income. Further, the said explanation coupled with the fact that there is no dispute that the expenditure is genuine and the services have been availed by the assessee company and the amount have been paid to them also support the case of the assessee against non-levy of penalty. It is now well settled as held in case of Reliance Petroproducts Limited (2010 (3) TMI 80 - SUPREME COURT) that mere making of claim which is not sustainable in law by itself will not amount to furnishing inaccurate for return of income. There is no finding given by the Assessing Officer that in the details supplied by the assessee in its return of income, there is any incorrect, erroneous or false information which has been supplied by the assessee. - Decided in favour of assessee
Issues Involved:
1. Whether the CIT(A) erred in deleting the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. 2. Whether the assessee failed to discharge its statutory liability as per the Income Tax Act, 1961. 3. Whether the plea of no mens rea is tenable in the context of civil liability for penalty. Issue-wise Detailed Analysis: 1. Deletion of Penalty under Section 271(1)(c): The penalty under section 271(1)(c) was levied by the Assessing Officer due to the disallowance made under section 40(a)(ia) of the Act. The assessee did not deduct TDS at the time of crediting the Associate Business Associates (ABA) Pool account but did so when crediting the individual ABA accounts. The CIT(A) noted that this practice had been consistently followed since A.Y. 2002-03 and that TDS was eventually deducted and deposited in subsequent years. The CIT(A) referenced the Supreme Court's decision in Reliance Petro Products Ltd., stating that merely making a claim of expenditure that is not sustainable in law does not amount to furnishing inaccurate particulars of income. The penalty was thus deleted. 2. Statutory Liability under the Income Tax Act, 1961: The assessee argued that at the time of booking expenses and crediting the ABA Pool Account, the exact amount payable to each ABA was not ascertainable. Therefore, TDS was not deducted at that stage but was deducted at the time of actual payout. The ITAT Chennai Bench case of Dishnet Wireless Ltd. was cited, which held that TDS is required only if the payee is identified and the payment amount is ascertainable. The assessee's method of deducting tax at the time of payment was deemed plausible. 3. Plea of No Mens Rea: The assessee contended that complete details were disclosed in the return filed, and the additions made by the AO were due to different views on the same facts, not due to concealment or inaccurate particulars. The Supreme Court in Reliance Petroproducts Ltd. held that mere disallowance of a claim does not attract penalty under section 271(1)(c). The Karnataka High Court in Manjunatha Cotton & Ginning Factory emphasized that the notice for penalty must specify the exact nature of the default (concealment or inaccurate particulars). The AO's failure to clearly specify the limb under which the penalty was imposed indicated a lack of application of mind. Conclusion: The tribunal found that the assessee's explanation regarding the timing of TDS deduction was reasonable and supported by contractual obligations. There was no evidence of incorrect, erroneous, or false information in the return filed by the assessee. Thus, the penalty under section 271(1)(c) was not justified. The order of the CIT(A) deleting the penalty was upheld, and the Revenue's appeal was dismissed. Order: The appeal of the Revenue is dismissed. Order pronounced in the open court on 25/04/2017.
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