2017 (8) TMI 415 - AT - Income Tax

Penalty u/s. 271(1)(c)(1)(c) - AO had reduced WIP on account of excess labour charges debited to WIP in respect of Ishwar Dayal Chavda(IDC) - Held that - There is no need for any authority to state that assessment proceedings and penalty proceedings are independent and separate and that quantum addition should not always lead to levy of concealment penalty. While invoking the provisions of section 271(1)(c)of the Act, the AO has to consider the explanation filed by the assessee, during the penalty proceedings. In the instant case, the assessee had filed additional evidence before the FAA during the quantum proceedings. The confirmation letter of IDC and the other documents available in the paper book clearly indicate that the claim made by the assessee could not be termed a malafide claim. It is also noteworthy that the assessee had deducted TDS on labour charges and same were not found to be bogus or non-genuine. AO has not challenged the method of accounting followed by the assessee i.e. the project completion method. Thus we are of the opinion that the claim made by the assessee was bonafide and legal claim and disallowance of the same should not be visited by penal provisions. Therefore, reversing the order of the FAA we decide the effective ground of appeal in favour of the assessee.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Disallowance of labour charges under section 40 of the Act.
3. Imposition of penalty under section 271(1)(c) for furnishing inaccurate particulars of income.
4. Deletion of penalty with regard to addition/disallowance made under section 40 for non-credit of TDS.

Issue 1: Confirmation of Penalty under Section 271(1)(c)
The Appellate Tribunal ITAT Mumbai dealt with the challenge against the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The Assessing Officer (AO) had directed the assessee to provide details of Work-in-Progress (WIP) for a project, and upon investigation, found an inflation of WIP by a significant amount. The AO reduced the inflated amount and imposed a penalty for furnishing inaccurate particulars of income. The First Appellate Authority (FAA) confirmed the penalty, stating that the assessee did not appeal against the assessment order for the relevant year. The Tribunal observed that the assessee failed to substantiate its explanation during the appellate proceedings, leading to the confirmation of the penalty. However, the Appellate Tribunal reversed the FAA's decision, considering the additional evidence provided by the assessee, which indicated a bona fide claim and no malafide intent. The Tribunal concluded that the claim was legal and bonafide, thus overturning the penalty.

Issue 2: Disallowance of Labour Charges under Section 40
The AO disallowed labour charges under section 40 of the Act, citing late payment and non-compliance with tax deduction at source requirements. The FAA upheld this disallowance based on a Special Bench order. The Tribunal noted the disallowance but reversed the decision, stating that the claim made by the assessee was legitimate and should not attract penal provisions, especially considering the TDS deductions made by the assessee.

Issue 3: Imposition of Penalty under Section 271(1)(c)
The AO initiated a penalty under section 271(1)(c) for furnishing inaccurate particulars of income. The AO held that the assessee did not provide a satisfactory explanation, rendering it liable for the penalty. The FAA confirmed the penalty, emphasizing the failure of the assessee to disclose accurate facts. However, the Tribunal reversed the FAA's decision, highlighting the additional evidence submitted by the assessee during the quantum proceedings, which supported a legitimate claim. The Tribunal concluded that the penalty was not justified in this case.

Issue 4: Deletion of Penalty for Non-Credit of TDS under Section 40
The AO raised a ground of appeal regarding the deletion of penalty concerning non-credit of TDS under section 40. The Tribunal upheld the FAA's decision to delete the penalty, as the earlier order had already addressed and resolved the issue of non-deduction of tax at source. Consequently, the appeal filed by the assessee was allowed, while the appeal of the AO was dismissed.

In summary, the Appellate Tribunal ITAT Mumbai addressed various issues related to penalties, disallowances, and compliance with tax provisions, ultimately ruling in favor of the assessee on multiple grounds due to legitimate claims and lack of malafide intent.