2018 (6) TMI 1095 - AT - Income Tax

Penalty 271(l)(c) r.w. Explanation 1A - addition made towards management fees paid u/s 40(a)(ia) for failure to deduct tax u/s 194J - Held that - mere disallowance of certain expenses during assessment proceedings does not attract penalty provisions u/s 271(1)(c) if such disallowance is made for technical of venial breach of TDS provisions - The Hon ble Supreme Court in the case of PRICE WATERHOUSE COOPERS (P.) LTD. VERSUS COMMISSIONER OF INCOME-TAX, KOLKATA - I 2012 (9) TMI 775 - SUPREME COURT held that penalty for concealment cannot be levied in case of bona fide / inadvertent / human error. ITAT, MumbaI Bench E in the case of Satyajeet Movies Pvt Ltd (2014 (2) TMI 1335 - ITAT MUMBAI) held that no penalty can be levied u/s 271(1)(c) for any addition made u/s 40(a)(ia) for failure to deduct TDS, once such payment has not been doubted. The default committed by the assessee can be termed it as technical or venial breach for which rigors of penalty provisions cannot be invoked - thus CIT(A), after considering relevant submissions, has rightly deleted penalty levied by the AO in respect of addition made u/s 40(a)(ia) - Decided in favor of assessee.

Summary

Issues:
1. Appeal against cancellation of penalty under section 271(1)(c) r.w. Explanation 1A of the Income Tax Act.
2. Disallowance of management fees paid for failure to deduct tax at source under section 40(a)(ia).
3. Non-reconciliation of AIR mismatch amount.

Analysis:
1. The appeal was filed against the cancellation of penalty under section 271(1)(c) by the CIT(A) for Assessment Year 2011-12. The AO had levied a penalty of ?1,79,93,261 for furnishing inaccurate particulars of income. The AO contended that the assessee had concealed income by not adding back the disallowed management fees. The CIT(A) held that penalty cannot be levied for technical defaults in TDS provisions and deleted the penalty based on the ITAT decision in a similar case. The Tribunal upheld the CIT(A)'s decision citing various judicial precedents supporting the view that penalty cannot be imposed for technical or venial breaches.

2. The disallowance of management fees paid without deducting tax at source under section 40(a)(ia) was a key issue. The AO imposed the penalty based on the tax auditor's report highlighting the non-deduction of TDS on management fees. The CIT(A) observed that the genuineness of the expenses was not in doubt, and the disallowance was due to a technical default. The penalty was cancelled for this disallowance. The Tribunal agreed with the CIT(A) that no penalty could be levied for such technical defaults in TDS provisions.

3. Another issue was the non-reconciliation of AIR mismatch amount. The AO confirmed the penalty for this discrepancy, considering it as filing inaccurate particulars of income leading to concealment. The CIT(A) upheld the penalty for this specific issue. The Tribunal concurred with the CIT(A)'s decision on this matter, emphasizing the importance of accurately reconciling financial statements.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to cancel the penalty under section 271(1)(c) for the disallowance of management fees due to TDS defaults. The Tribunal reiterated that penalties cannot be imposed for technical or venial breaches in tax compliance, as supported by various judicial precedents.