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Penalty imposed u/s 271(1)(c) must necessarily be preceded by tax evasion; any incorrect but nonetheless bona fide claim made by an assessee will not attract penalty: ITAT

2019-TIOL-1521-ITAT-MUM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘F’ MUMBAI

ITA No.7030/Mum/2018
Assessment Year: 2013-14

M/s V K LALCO PVT LTD
1017/18, DALAMAL TOWER, 10TH FLOOR
NARIMAN POINT, MUMBAI – 400021
PAN NO:AAACV9820A

Vs

DEPUTY COMMISSIONER OF INCOME TAX
WARD 3(3)(2), ROOM NO 609, 6TH FLOOR
AAYAKAR BHAVAN, M K ROAD
MUMBAI – 400020

C N Prasad, JM & Rajesh Kumar, AM

Date of Hearing: June 10, 2019
Date of Decision: June 19, 2019

Appellant Rep by: Shri Hari S Raheja, AR
Respondent Rep by: 
Shri Rajiv Gubgotra, DR

Income Tax – Sections 271(1)(c) & 292B

Keywords – Levy of penalty – Concealment – Excess claim of TDS – reasonable cause

During the assessment proceedings, the assessee had claimed TDS on Rs.3,48,120 regarding which the correlating income had not been offered. The TDS belonged to some other party who had paid appropriate income to tax in return. The AO however, rejected the claim while clarifying that assessee had not offered the corresponding income to tax and even initiated penalty proceedings for concealment of income u/s 271(1)(c). The AO levied it on the ground that no explanation for excess claim of TDS had been made in the return by the assessee and therefore the contention that there was no concealment of income, could not be accepted. In the appellate proceedings, the CIT(A) observed that the assessee had participated in penalty proceedings for which he had been given proper opportunity to respond and therefore the case would circumscribe the provision of section 292B. Further, the assessee had appealed against the order of CIT(A) in the ITAT, but in vain.

On appeal, the ITAT held that,

Whether there has to be tax evasion for purpose of imposition of penalty u/s 271(1)(c) – YES: ITAT

Whether a wrong but bonafide claim of taxpayer attracts rigours of penalty – NO: ITAT

++ it is observed in this case that the penalty was levied for wrong claim of TDS in the return of income to the tune of Rs.3,48,120/- without offering the corresponding income to tax. In fact this TDS did not belong to the assessee but appeared in the form No.26AS and accordingly claimed by the assessee. In this Tribunal’s view, the penalty u/s 271(1)(c) can only be initiated and levied if there is a concealment of income or furnishing of inaccurate particulars of income on the part of the assessee. However, in this particular case it was a wrong claim of TDS and thus the provisions of section 271(1)(c) do not apply to the present case. Even for the purpose of levying of penalty, the mechanism provided in the section itself provides for calculation of penalty which is 100% to 300% of the tax sought to be evaded. In other words, there has to be tax evasion for the purpose of imposition of penalty otherwise the provisions of section 271(1)(c) do not hold good. Even on legal issue the assessee has got a very strong case as the penalty has been initiated on both the charges. The penalty notices u/s 271(1)(c) were issued in a mechanical manner without mentioning or stating the specific charge on which the penalty was proposed to be levied without any application of mind.

Assessee’s appeal allowed

Cases Cited :

CIT vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom.) = 2017-TIOL-155-HC-MUM-IT

CIT vs. Mrs. Piedade Perinchery ITXA No.1310 of 2014

ORDER

Per: Rajesh Kumar:

The present appeal has been preferred by the assessee against the order dated 17.09.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2013-14.

2. The only issue raised by the assessee in this appeal is against the confirmation of penalty of Rs.3,48,120/- by Ld. CIT(A) as levied by the AO under section 271(1)(c) of the Act towards wrong claim of TDS of Rs.3,48,120/-.

3. The facts in brief are that the AO during the course of assessment proceedings observed that the assessee has claimed TDS which includes Rs.3,48,120/- in respect of which the corresponding income has not been offered by the assessee. The said TDS belonged to some other party and has been claimed by the said party in its return of income besides offering the corresponding income to tax. The AO noted that since the assessee has not offered the tax corresponding income, the credit of TDS of Rs.3,48,120/- can not be allowed and hence rejected the claim of the assessee. The AO initiated penalty proceedings under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income and/or concealment of income. Pertinent to state that no addition of income was made in the assessment order concerning this TDS. Thereafter, penalty under section 271(1)(c) of the Act was levied vide order dated 27.09.2016 of Rs.3,48,120/- for furnishing of inaccurate particulars of income and concealing the particulars of income. The AO levied the penalty on the ground that the assessee is very casual in its approach as it has not submitted any valid explanation as to why excess claim of TDS was made in the return and therefore the contention of the assessee that there is no concealment of income or inaccurate particulars of income can not be accepted.

4. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee on merits as well as on legal issue of not mentioning specific charge in the notice issued under section 274 read with section 271(1)(c) of the Act. On merit, the Ld. CIT(A) relied on the case of Mak Data Pvt. Ltd. vs. CIT (2013) 38 taxman.com 448 (SC) = 2013-TIOL-58-SC-IT. The Ld. CIT(A) observed that assessee company should have known that it had not received any income corresponding to the TDS credit claimed by the assessee. On the legal issue the Ld. CIT(A) observed that the assessee has participated in the penalty proceedings and thus has been given proper opportunity to respond to the charges of concealment and therefore the case is covered by the provisions of section 292B of the Act.

5. After hearing both the parties and perusing the material on record, we observe that in this case the penalty was levied for wrong claim of TDS in the return of income to the tune of Rs.3,48,120/- without offering the corresponding income to tax. In fact this TDS did not belong to the assessee but appeared in the form No.26AS and accordingly claimed by the assessee. Arguments of the Ld. Counsel was that in any case even if the TDS is claimed in the return of income, the credit is only allowed after verification of the TDS as appearing in form 26AS. We find that the only addition made in the assessment order was in respect of disallowance under section 14A of the Act. Now the only issue before us is that where there is no addition made to the income of the assessee by the AO in the assessment framed u/s 143(3) of the Act whether the penalty for concealment of income or for furnishing of inaccurate particulars of income could be levied. In the present case before us during the assessment proceedings the AO rejected the claim of the assessee for the TDS of Rs.3,48,120/- and there was no addition made to the income of the assessee of any kind whatsoever qua this TDS claim. In our view, the penalty under section 271(1)(c) of the Act can only be initiated and levied if there is a concealment of income or furnishing of inaccurate particulars of income on the part of the assessee. However, in this particular case it was a wrong claim of TDS and thus the provisions of section 271(1)(c) of the Act do not apply to the present case. Even for the purpose of levying of penalty, the mechanism provided in the section itself provides for the calculation of penalty which is 100% to 300% of the tax sought to be evaded. In other words, there has to be tax evasion for the purpose of imposition of penalty otherwise the provisions of section 271(1)(c) of the Act do not hold good. Even on legal issue the assessee has got a very strong case as the penalty has been initiated on both the charges. The penalty notices under section 271(1)(c) dated 09.03.2016 and 22.08.2016 were issued in a mechanical manner without mentioning or stating the specific charge on which the penalty was proposed to be levied without any application of mind. Similarly the order of imposing penalty was passed by the AO on both the charges as stated in para 9 of the penalty order. The case of the assessee is squarely covered by the ratio laid down by the Hon’ble Bombay High Court in the case of CIT vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom.) = 2017-TIOL-155-HC-MUM-IT and CIT vs. Mrs. Piedade Perinchery ITXA No.1310 of 2014 order dated 10.01.2017 (Bom. – HC) wherein it has been held that no penalty can be levied where the specific charge was not mentioned in the notice issued under section 274 read with section 271(1)(c) as the assessee is not confronted and given an opportunity to respond to the charge on which the penalty was levied and the penalty imposed was held to be invalid. We are therefore respectfully following the decision of the Hon’ble Bombay High Court as stated hereinabove set aside the order of Ld. CIT(A) and direct the AO to delete the penalty. Pertinent to state that even on merits no penalty is exigible. Therefore the appeal of the assessee is allowed both on technical as well as on merits.

6. In the result, the appeal of the assessee is allowed.

(Order pronounced in the open court on 19.06.2019)

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