2016 (9) TMI 1034 - AT - Income Tax

Penalty u/s 271(1)(c) - fictitious book entry & cash payments of labour expenses - difference in turnover - Held that - We find that the additions i.e. fictitious book entry & cash payments of labour expenses respectively as disallowed by A.O. on assumption basis and the same was restricted by CIT(A) to the extent of 25%. Against the order of the CIT(A), when revenue carried the matter in appeal before the ITAT in the assessee s own case, ITAT has observed that the CIT(A) has examined each and every aspect of the claim of the expenses raised by the assessee. No specific defect has been pointed out in the order of the CIT(A) and hence found no infirmity therein and accordingly confirmed the order of the CIT(A). In view of the above, we find that the disallowance sustained for the assessment years 2005-06 as well as 2006-07 is only on assumption basis, therefore, no penalty can be levied. Therefore, we find no infirmity in the order passed by the Ld. CIT(A). In so far as difference of turnover is concerned, during the course of the assessment proceedings, the A.O. has asked the assessee to reconcile the difference of ₹ 2,91,964/- being the difference between the net project turnover which is of ₹ 4,00,00,304/- and the turnover reflected in the books of accounts of ₹ 3,97,08,340/-. The assessee was not able to substantiate the difference and paid taxes accordingly. In our opinion, the difference in turnover is neither amounting to concealment nor filing of inaccurate particulars. On this count, no penalty can be levied. This ground of appeal raised by the revenue is dismissed. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of Labour Expenses (Fictitious Book Entry)
2. Disallowance of Labour Expenses (Cash Payments)
3. Suppressed Turnover
4. Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961

Detailed Analysis:

1. Disallowance of Labour Expenses (Fictitious Book Entry):
The Assessing Officer (A.O.) found that the assessee had incurred fictitious labour expenses amounting to ?36,26,032 for the assessment year (A.Y.) 2005-06 and ?1,17,50,529 for A.Y. 2006-07. The Commissioner of Income Tax (Appeals) [CIT(A)] directed the A.O. to restrict the disallowance to 25% of these amounts. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, noting that the disallowance was made on an estimated basis and not on specific findings of false claims. The penalty imposed by the A.O. was cancelled by the CIT(A) on the grounds that the disallowance was based on estimates and assumptions, not on concrete evidence of concealment.

2. Disallowance of Labour Expenses (Cash Payments):
The A.O. also disallowed cash payments for labour expenses amounting to ?17,20,000 for A.Y. 2005-06 and ?38,97,000 for A.Y. 2006-07. The CIT(A) directed the A.O. to restrict the disallowance to 25% of these amounts. The ITAT confirmed the CIT(A)'s decision, observing that the disallowance was based on assumptions. The penalty proceedings were similarly cancelled by the CIT(A), who noted that the A.O. did not provide any specific evidence of false claims and that the disallowance was made on an estimated basis.

3. Suppressed Turnover:
The A.O. found a suppressed turnover of ?2,91,964 for A.Y. 2005-06. The CIT(A) confirmed this addition as the assessee could not reconcile the difference between the net project turnover and the turnover reflected in the books of accounts. The ITAT agreed with the CIT(A) that the difference in turnover did not amount to concealment of income or filing of inaccurate particulars. Therefore, no penalty was imposed on this ground.

4. Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961:
The A.O. initiated penalty proceedings under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars. The CIT(A) cancelled the penalties, noting that the disallowances were made on an estimated basis and that the A.O. did not provide specific evidence of false claims. The ITAT upheld the CIT(A)'s decision, emphasizing that penalty proceedings are separate from assessment proceedings and require concrete evidence of concealment or inaccurate particulars. The ITAT cited various legal precedents to support this view, including the decisions in Commissioner of Income-tax Vs. Khoday Eswara & Sons and Anantharam Veerasinghaiah & Co., Vs. Commissioner of Income-tax.

Conclusion:
The ITAT dismissed the appeals filed by the revenue for both assessment years 2005-06 and 2006-07, finding no basis for the penalties imposed by the A.O. The disallowances were based on estimates and assumptions, and no concrete evidence of concealment or inaccurate particulars was provided. The penalties were therefore not justified.