2020 (8) TMI 660 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance u/s 40(a)(ia) - as per AO assessee should have disallowed the corresponding expenditure and not the TDS amount - bonafide mistake or not? - HELD THAT - In the statutory audit report itself, the auditor has furnished the details of expenditure in respect of which tax was not deducted at source. It is also evident that the assessee has voluntarily made some disallowances under section 40(a)(ia) - mistake committed by the assessee is, instead of disallowing expenditure incurred which was subject to TDS, it has computed the TDS amount of such expenditure and has disallowed under section 40(a)(ia) - a bonafide mistake on the part of the assessee, as submitted by the learned Authorised Representative. AO has not doubted either the genuineness of the expenditure claimed or the payments made. The only reason for which the expenditure was disallowed is due to non deduction of tax at source. In other words, it is statutory disallowance. That being the case, the assessee cannot be accused of submitting inaccurate particulars of income or concealing its income. Accordingly, we delete the penalty imposed under section 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2013-14 due to delay in filing appeal and reason for delay. Disallowance of TDS amount by Assessing Officer under section 40(a)(ia) of the Act leading to penalty imposition. Justification for penalty deletion based on bonafide mistake by the assessee in disallowing TDS amount instead of corresponding expenditure. Legal issue raised regarding the validity of penalty order due to defective show cause notice.

The appeal was filed challenging the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2013-14. The delay of 153 days in filing the appeal was condoned by the Appellate Tribunal due to a reasonable cause, allowing the appeal to be admitted for adjudication on merit. The delay was attributed to the hospitalization and subsequent death of one of the partner's father, supported by a death certificate.

The Assessing Officer disallowed a TDS amount of &8377; 5,40,170 under section 40(a)(ia) of the Act during assessment proceedings. This disallowance led to the initiation of penalty proceedings under section 271(1)(c) alleging inaccurate particulars of income and concealment of income. The penalty of &8377; 1,60,776 was imposed and upheld by the Commissioner (Appeals).

The Appellate Tribunal noted that the mistake made by the assessee in disallowing the TDS amount instead of the corresponding expenditure was a bonafide error. The Tribunal observed that the expenditure was genuine, and the disallowance was due to non-deduction of tax at source, making it a statutory disallowance. As there was no intent to provide inaccurate particulars of income or conceal income, the penalty was deleted.

An additional legal issue was raised challenging the validity of the penalty order due to a defective show cause notice issued under section 274 of the Act. However, since the penalty was deleted on merits, the Tribunal did not address this additional ground raised by the assessee, dismissing it accordingly. Ultimately, the assessee's appeal was allowed, and the penalty under section 271(1)(c) of the Act was deleted.

The order was pronounced on 30.06.2020 through the notice board under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963.