2019 (3) TMI 1302 - AT - Income Tax

Disallowance of expenses and Penalty u/s 271(1)(c) - labour expenses - labour expenditure related to son & wife - Son is helping the father but wife is house-wife - second round of litigation upto the Tribunal - HELD THAT - In the first round, the Tribunal has remitted this issue to the file of the ld.CIT(A) for fresh adjudication. The assessee has filed fresh material before the ld.CIT(A) which have been considered by the ld.CIT(A), but concurred with the AO. A perusal of the record would indicate that payments have been made through account payee cheques. Identity of both the persons is not in dispute. The AO was satisfied to some extent that son was helping his father. But on the basis of their statement, he harboured a belief that father of the family members of the assessee might have inflated the expenditure by debiting the same in their names. After considering details, we are of the view that possibility of helping her husband by Usha Chauhan and Shri Harish Chauhan helping his father in his business cannot be ruled out. They may not be well aware about the bills issued in their names, but they have confirmed that they are attending to the business needs and helping the assessee in his proprietorship concerns. AO ought to have appreciated this aspect keeping in mind smallness of the business, which is not in an organized sector. It is not new that family members helping each other in doing business in their proprietor-ship concerns. If some salary is attributable to them on their working, then it should not be doubted simply for the reason that those family members are not aware about the raising of bills in their names. To our mind, the AO is too theoretical instead of appreciating the reality of the business of such family proprietorship concerns. We allow the appeal of the assessee and the delete impugned addition. penalty u/s 271(1)(c)- - HELD THAT - the quantification of the penalty is depended upon the addition made to the income of the assessee. Since we have already deleted the additions, penalty u/s 271(1)(c) does not survive - Decided in favour of assessee.

Summary

Issues:
1. Quantum appeal against addition of labor expenses
2. Penalty appeal under section 271(1)(c) of the Act

Quantum Appeal - ITA No.961/Ahd/2017:
The case involved two appeals by the assessee against orders of the ld.CIT(A)-5, Ahmedabad for the Asstt.Year 2008-09. The first appeal, ITA No.961/Ahd/2017, challenged the addition of ?7,24,159 out of disallowed labor expenses. The AO disallowed labor expenses debited to the profit & loss account of one of the proprietorship concerns. The AO allowed expenses related to one entity but disallowed expenses related to family members, suspecting inflation of expenditures. The Tribunal noted that payments were made through account payee cheques, and the identity of the family members was not in dispute. It was observed that family members often help each other in such businesses, and their lack of awareness about bill details did not negate their involvement in the business. The Tribunal held that the AO should have considered the practical aspects of family-run businesses and allowed the appeal of the assessee, deleting the addition.

Penalty Appeal - ITA No.962/Ahd/2017:
Regarding the penalty imposed under section 271(1)(c) of the Act, the Tribunal had already deleted the quantum addition. The Tribunal referred to sub-clause (iii) of section 271(1)(c), which provides for the quantification of penalty based on the tax sought to be evaded due to concealment of income. Since the additions were deleted in the quantum appeal, the penalty under section 271(1)(c) was deemed not applicable and was accordingly deleted. As a result, both the quantum and penalty appeals of the assessee were allowed by the Tribunal.

The judgment was pronounced in the Open Court on 25th March 2019 by Shri Rajpal Yadav, Judicial Member, and Shri Waseem Ahmed, Accountant Member.