2019 (6) TMI 299 - AT - Income Tax

Penalty under s. 271(1)(c) - disallowances u/s.40(a)(ia) and Sec.40A(3) - HELD THAT - Firstly the disallowances u/s.40(a)(ia) and Sec.40A(3) are statutory disallowances and there is no dispute about the genuineness of these expenses or that they were unrelated to the business of the Assessee. On such statutory disallowances there cannot be imposition of penalty especially when the Assessee had not made claim for deduction of these expenses in a return of income filed. Secondly there cannot be any penalty on income which is declared in a return of income on the facts and circumstances of the present case. Penalty u/s.271(1)(c) is imposed for concealing particulars of income or furnishing inaccurate particulars of income . When an income which is ultimately brought to tax is declared in a return of income there can be no question of treating the Assessee as having concealed particulars of income or furnished inaccurate particulars of income . See VASAVI SHELTERS VERSUS INCOME-TAX OFFICER WARD 4(1) BANGALORE 2013 (4) TMI 485 - ITAT BANGALORE The starting point of determining concealment for imposing penalty is the return of income. If the return of income declares income which is ultimately brought to tax there can be no complaint by the revenue that the Assessee is guilty of concealing particulars of income or furnishing inaccurate particulars of income. The decision of the Tribunal in the case of Vasavi Shelters 2013 (4) TMI 485 - ITAT BANGALORE supports the plea of assessee in this regard. Non specification of charge - Also the show cause notice issued by the AO before imposing penalty does not specify the charge against the assessee for which the penalty is sought to be imposed viz. as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. In the circumstances the decision of Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT will apply and imposition of penalty has to be held to be not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Assessment of penalty under section 271(1)(c) for furnishing inaccurate particulars of income.
2. Delay in filing appeal before CIT(A) and its consequences.

Issue 1: Assessment of penalty under section 271(1)(c) for furnishing inaccurate particulars of income:
The case involved a partnership firm engaged in civil construction that underwent a survey under section 133A of the Income-Tax Act, 1961. During the survey, it was discovered that the firm had not deducted tax at source on certain expenditures and had also incurred expenses in cash above the specified limits. Subsequently, the firm filed its return of income for the relevant assessment year, declaring the disallowed amounts. The Assessing Officer (AO) accepted the return but initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income. The firm contended that since the disallowed amounts were declared in the return and accepted by the AO, there was no basis for imposing the penalty. The AO and CIT(A) disagreed, leading to an appeal before the Tribunal.

The Tribunal analyzed the situation and emphasized that statutory disallowances under sections 40(a)(ia) and 40A(3) do not warrant penalty, especially when the expenses were not claimed as deductions in the return. It noted that penalty under section 271(1)(c) is for concealing or furnishing inaccurate particulars of income, and when the declared income aligns with the final tax liability, there is no concealment. The Tribunal referenced precedents to support its stance, highlighting that the starting point for penalty determination is the return of income. Additionally, it pointed out that the show cause notice issued by the AO did not specify the charge for which the penalty was imposed, rendering it unsustainable. Consequently, the Tribunal ruled in favor of the firm, canceling the penalty imposed under section 271(1)(c).

Issue 2: Delay in filing appeal before CIT(A) and its consequences:
The firm had filed an appeal before the CIT(A) against the assessment order, but there was a significant delay of 725 days in submitting the appeal. The CIT(A) declined to condone the delay and dismissed the appeal. Subsequently, the firm challenged this decision by filing an appeal before the Tribunal. During the Tribunal proceedings, the firm's counsel withdrew the appeal, leading to its dismissal as withdrawn.

In summary, the Tribunal's judgment addressed the imposition of penalty under section 271(1)(c) for furnishing inaccurate particulars of income, emphasizing the importance of aligning declared income with final tax liability to avoid penalties. Additionally, it highlighted the consequences of delays in filing appeals before the CIT(A) and the need for timely compliance with procedural requirements in tax matters.