2012 (10) TMI 777 - AT - Income Tax

Penalty u/s 271(1)(c) - addition to income - Held that - The assessee has given an explanation the amount represents sale of car and recovered from the blues on account of Shri Deepak Seth. The addition was made because supporting documents were not given by the assessee. Its explanation was not found to be false. Only thing is that assessee could not substantiate its explanation with the supporting evidence. Thus, this amount, prima facie, cannot be considered for the purpose of the penalty. Non deduction of TDS - Held that - The revenue authorities have not referred any circumstance or past conduct of the assessee which suggests that such type of mistake expressed by the assessee as bona fide cannot happen in its case. Though it is quite difficult to prove or disprove such type of claim with the help of demonstrative evidence but the Assessing Officer who assessed the assessee annually may refer some circumstance which can highlight the antecedents of the assessee or its conduct in earlier or subsequent year to suggest that it was not a bona fide mistake rather it was a deliberate attempt. No such material is available on the record, therefore, we do not have any hesitation to conclude that such type of mistake can happen while filing the return - direction to delete the penalty levy - in favour of assessee.

Summary

Issues:
1. Confirmation of penalty under sec. 271(1)(c) of the Income-tax Act, 1961 for assessment year 2006-07.

Analysis:
The appellant challenged the penalty imposed under sec. 271(1)(c) of the Income-tax Act, 1961 for assessment year 2006-07, contending that the Learned CIT(Appeals) erred in confirming the penalty of Rs.88,593. The case involved additions to the capital account of a partner, disallowed expenses, and failure to deduct TDS. The Assessing Officer initiated penalty proceedings based on these discrepancies.

The Assessing Officer directed the appellant to explain the additions made to the capital account, which the appellant partially substantiated. Disallowed expenses for auditors' remuneration and freight charges were also confronted, leading to the penalty imposition. The appellant claimed these discrepancies were due to bona fide mistakes, but the Assessing Officer deemed it a deliberate attempt to evade tax, resulting in the penalty being imposed.

Upon review, the Tribunal found that the reasoning for imposing the penalty was flawed. The Tribunal noted that while some additions lacked proper documentation, they were not proven false, and thus could not be considered for penalty purposes. Additionally, the disallowed expenses were of revenue nature, but the failure to deduct TDS rendered them inadmissible, as per section 40(a)(ai) of the Act.

The Tribunal distinguished the present case from the decision in Zoom Communications, emphasizing the nature of the expenses and the absence of evidence suggesting deliberate evasion. The Tribunal concluded that the appellant's claim of bona fide mistakes was plausible, especially in the absence of any past conduct indicating deliberate tax evasion. Consequently, the Tribunal allowed the appeal, overturning the penalty imposed under sec. 271(1)(c) of the Income-tax Act, 1961.

In summary, the Tribunal's decision revolved around the assessment of the appellant's explanations for the discrepancies in the capital account and disallowed expenses. The Tribunal found the penalties unjustified, considering the nature of the mistakes and the lack of evidence supporting deliberate tax evasion. The Tribunal's ruling favored the appellant, leading to the deletion of the penalty imposed by the Assessing Officer.