Hardik Mahendrabhai Patel Vs DCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that making of incorrect claim in law cannot tantamount to furnishing of inaccurate particulars or concealment of income. Therefore, the penalty under section 271(1)(c) of the Income Tax Act not sustainable.
Facts- The assessee filed his return of income on 29.10.2016 declaring total income of Rs.11,58,840/-. AO vide Assessment Order dated 20.12.2017 made addition of Rs.5,62,893/- in respect of gross receipt as per Form No.26AS. The Assessing Officer also made addition of Rs.54,01 0/- on account of vehicle repairing expenses and addition of 10,69,021/- thereby disallowing the claim u/s. 36(1)(va) read with Section 2(24)(x) of the Act as employee’s contribution credited in employees’ account of respective funds. The Assessing Officer further made addition of Rs.87,436/- thereby disallowing the payment specified in Section 40A(3) of the Act. Subsequently, the Assessing Officer issued notice u/s. 274 read with Section 271(1)(c) of the Act. The Assessing Officer imposed penalty of Rs.5,20,951/- in respect of all the additions for concealment of income.
Being aggrieved by the penalty order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
Conclusion- Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. held that making of incorrect claim in law cannot tantamount to furnishing of inaccurate particulars or concealment of income. Therefore, the penalty levied under the same does not sustain.
As regards to penalty in respect of disallowance u/s. 40A(3) of the Act, for Vehicle Expenses, the same cannot be said as concealment of income as the assessee has genuinely claimed the vehicle expenses and, therefore, the penalty in respect of this item does not sustain. As regards to penalty in respect of disallowance u/s. 40A(3) of the Act for cash payment for purchase of Gold Ornaments, the assessee has genuinely claimed the said expenditure and, therefore, it cannot be treated as concealment of income or furnishing of inaccurate particulars of income. As regards to disallowance u/s. 36(1)(va) for delay in depositing employees Provident Fund, the same does not sustain as the issue at the time of assessment proceedings was a debatable issue and certain decisions of Hon’ble High Courts were in favour of the assessee. Therefore, this cannot be treated as concealment of income or furnishing of inaccurate particulars of income. The penalty on this disallowance also does not sustain.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee against order dated 12.10.2022 passed by the CIT(A)-1 1, Ahmedabad for the Assessment Year 2015-16.
2. The Assessee has raised the following grounds of appeal :-
“1.1 That on the facts and in the circumstances and as per law the learned CIT(A) erred in sustaining the penalty of Rs.5,20,951/- under section 271(1)(c) of the Act on the ground of providing inaccurate particulars of income and solely on the ground that first and second appellate authorities had sustained the additions/disallowance to the returned income.
1.1 That learned CIT(A) failed to consider the fact that additions of Rs.5,62,893/- on the ground of difference in income as disclosed in the return and as per 26AS was due to bona-fide reasons as explained during the assessment proceedings and due to volume of contract receipts from various sites and from various parties the mistake had occurred and income was under reported by that amount which is only 0.20% of gross contract receipts of Rs.27, 14,97,374/-. Hence, bona-fides as explained by the appellant should have been accepted and penalty under Section 271(1)(c) should not have been levied nor sustained by the learned CIT(Appeals).
1.2 The learned CIT(A) erred in sustaining the penalty in respect of disallowance of otherwise genuine expenditure under Section 40A(3) of the Act. As per settled law penalty under section 271(1)(c) is not leviable in respect of disallowance of an item of expenditure.
1.3 The learned C!T(A) further erred by sustaining penalty in respect of disallowance aggregating to Rs. 10,69,021/- under section 36(1)(va) of the Act. Learned C!T(A) was ought to have considered the fact that appellant had deposited the employee’s contribution to PF & ES! before due date of return of income under section 139(1) and accordingly deduction was otherwise allowable under Section 43B in the opinion of the appellant. Considering the fact that issue was highly debatable and different courts of the country had given divergent views about the allowability of the same under section 43B of the Act, penalty under Section 271(1)(c) is not leviable, in respect of disallowance of otherwise genuine expenditure, as per settled law.”
3. The assessee is proprietor of First Care Corporation and engaged in the business of providing Manpower Supply Services and also derives income from remuneration from Ask Me LAB Con Services Pvt. Ltd. The assessee filed his return of income on 29.10.2016 declaring total income of Rs.11,58,840/-. The Assessing Officer vide Assessment Order dated 20.12.2017 made addition of Rs.5,62,893/- in respect of gross receipt as per Form No.26AS. The Assessing Officer also made addition of Rs.54,01 0/- on account of vehicle repairing expenses and addition of 10,69,021/- thereby disallowing the claim under Section 36(1)(va) read with Section 2(24)(x) of the Act as employee’s contribution credited in employees’ account of respective funds. The Assessing Officer further made addition of Rs.87,436/- thereby disallowing the payment specified in Section 40A(3) of the Act. Subsequently, the Assessing Officer issued notice under Section 274 read with Section 271(1)(c) of the Act. The Assessing Officer imposed penalty of Rs.5,20,951/- in respect of all the additions for concealment of income.
4. Being aggrieved by the penalty order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. At the time of hearing none appeared on behalf of the assessee, but vide letter dated 26.05.2023, the assessee has submitted written submissions and requested that the appeal be decided on the written submissions itself. The said written submissions are taken on record and we are proceeding on the basis of the same.
1.1 Appellant is assessed to tax in Individual capacity. He is in engaged in the business of ‘Manpower Supply Services’ in the name of “First Care Corporation” of which he is proprietor. For the year under consideration, appellant had disclosed total income of Rs. 1,158,840.
1.2 As per the assessment order under section 143(3), for the year under consideration, learned A.O. made additions aggregating to Rs. 17,73,360 on various ground to the returned income which were subject to appeal before the first and second appellate authority. Details of additions made to the returned income and decision of CIT (Appeals) and ITA T are as under;
