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2017 (11) TMI 1056 - AT - Income TaxPenalty u/s 271(1)(c) - disallowance made on ad-hoc basis and the assessee to buy peace with the Department made the surrender - Held that - Since, the assessee was in custody during the relevant period, when the assessee was asked to produce the necessary documents, to substantiate its claim, it may not be possible to furnish the same. The assessee to buy peace with the Department made a surrender and paid the taxes thereupon. In such a situation, the decision in CIT v. SDV Chandru (2003 (12) TMI 40 - MADRAS High Court ) wherein it was held by the Hon ble High Court that where the assessee has not disclosed his income in the returns filed for the previous years which have ended prior to the date of search and in the statement given u/s 132(4), the assessee admits the receipt of undisclosed income for those years and therefore pays taxes on the undisclosed income, such undisclosed income would be immunized from the levy of penalty. Quantum and penalty additions are all together different and since ad-hoc disallowance was made by the assessee and during the relevant period, the assessee, being in judicial custody, could not file the necessary evidence and made surrender to buy peace with the Department and paid taxed thereupon, therefore, at least, the penalty u/s 271(1)(c) will not survive. Thus, this appeal of the assessee is allowed.
Issues Involved:
1. Disallowance of expenses on an ad-hoc basis. 2. Penalty under Section 271(1)(c) of the Income Tax Act, 1961. 3. Condonation of delay in filing the appeal. Detailed Analysis: 1. Disallowance of Expenses on an Ad-hoc Basis: The assessee's appeal regarding the disallowance of ?2,32,249 (5% of traveling, advertisement, staff welfare, office, repair, and maintenance expenses) and ?55 lakhs for salaries and wages on an ad-hoc basis was not pressed by the assessee's counsel during the hearing. The Department had no objection to this withdrawal. Consequently, the Tribunal dismissed this appeal as not pressed. 2. Penalty under Section 271(1)(c) of the Income Tax Act, 1961: The assessee appealed against the penalty of ?16,99,500 imposed under Section 271(1)(c) and confirmed by the First Appellate Authority. The assessee argued that the disallowances were made on an estimate basis and that a surrender of ?55 lakhs was made to buy peace with the Department during a period when the assessee was in custody and unable to substantiate claims due to the lack of necessary documents. The Tribunal noted that the disallowances were indeed made on an ad-hoc basis and that the assessee's surrender was made under duress to avoid prolonged litigation. The Tribunal referenced several judicial precedents, including the Hon'ble Supreme Court's decision in CIT v. SDV Chandru (266 ITR 175) and CIT v. Suresh Chand Mital (241 ITR 124), which held that penalties should not be levied where additional income is declared to buy peace with the Department. The Tribunal also cited the jurisdictional High Court's decision in CIT vs Hira Lal Doshi, which supported the view that penalties should not be imposed when the assessee surrenders income to avoid litigation and pays taxes accordingly. After considering these precedents and the specific circumstances of the case, the Tribunal concluded that the penalty under Section 271(1)(c) was not justified and allowed the appeal in favor of the assessee. 3. Condonation of Delay in Filing the Appeal: The assessee requested the condonation of a 47-day delay in filing the appeal, supported by an affidavit explaining the reasons for the delay. The Tribunal emphasized a liberal approach towards condonation of delay if the reasons are bona fide and not due to negligence. Citing the Hon'ble Supreme Court's decision in Collector, Land Acquisition vs Mst. Katiji & Ors. (167 ITR 471) and Vedabhai vs Santaram (253 ITR 798), the Tribunal underscored the importance of substantial justice over technical considerations. The Tribunal found the reasons for the delay to be bona fide and beyond the control of the assessee, thus condoning the delay. Conclusion: The Tribunal dismissed ITA No. 4978/Mum/2014 as not pressed and allowed ITA No. 4979/Mum/2014, thereby canceling the penalty under Section 271(1)(c). The Tribunal pronounced the order in the open court in the presence of representatives from both sides.
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