2021 (8) TMI 1145 - AT - Income Tax

Disallowance of expenses and interest - assessee though appeared in person on two occasions but did not furnish any supporting bills/vouchers - CIT(A) has deleted the addition towards interest by observing that the same cannot be disallowed without proper verification - HELD THAT - Observation of the CIT(A) is not correct inasmuch as it was the assessee who did not furnish any details of the expenses including interest paid to others. There can be several reasons for the disallowance of interest. When the AO required the assessee to furnish the relevant details, it was the assessee who was at fault. AR submitted that the assessee had to shift its business premises because it was required to surrender under lock and key to the bank. No doubt, the assessee put in its appearance twice before the AO but did not furnish books of account which could have enabled the AO to examine and verify the details. AO in such circumstances should have found out a reasonable amount of deductible expenses on a certain parameter rather than disallowing the entire expense. Neither the AO was justified in making total disallowance of expenses nor the CIT(A) was justified in coming to the conclusion that no interest disallowance could be made without proper verification and further deleting disallowance by 90% of the remaining expenses. On a pertinent query, the ld. AR submitted that the books of account and vouchers, which were earlier under lock and key of the bank, are now available and can be produced before the AO. - Matter remanded back. Penalty u/s.271(1)(b) - HELD THAT - We find that the AO imposed penalty on account of failure of the assessee to put in any appearance and furnishing the necessary evidence - the premises of the assessee was under lock and key of the bank. Despite that, the assessee put in its appearance twice before the AO during the course of assessment proceedings. Evidence could not be furnished because it was not available at the material time - no penalty u/s. 271(1)(b) can be imposed because there was a reasonable cause in terms of section 273B of the Act for not producing the evidence.

Summary

Issues:
1. Quantum appeals regarding disallowance of expenses and penalty under section 271(1)(b) of the Income-tax Act, 1961.

Analysis:
1. Quantum Appeals - Disallowance of Expenses:
The case involved the disallowance of expenses amounting to ?10.38 crore claimed by the assessee in the return. Despite several opportunities, the assessee failed to provide supporting bills/vouchers for verification. The Assessing Officer (AO) added back the total expenses, leading to a dispute. The ld. CIT(A) deleted ?5.67 crore towards interest expenses but sustained an addition of ?46,15,496. The Tribunal noted that the assessee's failure to furnish details hindered proper verification. The Tribunal observed that the ld. CIT(A) erred in deleting the interest disallowance without proper verification. The Tribunal remitted the matter to the AO for fresh assessment, allowing the assessee to produce necessary evidence.

2. Penalty under Section 271(1)(b) of the Act:
The AO imposed a penalty of ?10,000 for the assessee's failure to appear and furnish evidence. However, the Tribunal found that the assessee had valid reasons for not producing evidence as the premises were under the bank's control. Despite this, the assessee appeared twice before the AO. Considering the circumstances, the Tribunal held that there was a reasonable cause under section 273B of the Act for not providing evidence. Consequently, the penalty under section 271(1)(b) was deemed unwarranted, and the appeal was allowed.

This judgment highlights the importance of providing necessary documentation to support expense claims and the significance of reasonable cause in penalty imposition under the Income-tax Act, 1961.