TMI Blog2014 (1) TMI 1072X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the contractor or of payment made to sub-contractor - Nor there is any facts brought on record by the department that the payments claim to have been made by the assessee to sub-contractor and /or payments of rent were in any way bogus or inflated - Following CIT V/s Reliance Petroproducts (P.) Ltd [2010 (3) TMI 80 - SUPREME COURT] - If the assessee has not concealed any material fact or the factual information given by him is not found to be incorrect, he will not be liable for imposition of penalty u/s 271(1)(c) of the Act, even if the claim made by him is unsustainable in law provided he substantiated the explanation offered by him or explanation even if not substantiated, is found to be bonafide - The provision of section 40(a)(ia) are deeming provision which creates legal fiction and that legal fiction cannot be extended beyond the disallowance of expenditure - It cannot be applied for invoking the provisions of section 271(1)(c) of the Act for levying penalty for concealment of income or furnishing inaccurate particulars of income - Decided in favour of assessee. - I.T.A. No. 7142/Mum/2011, I.T.A. No. 4735/Mum/2013 - - - Dated:- 11-12-2013 - Shri B. R. Mittal,(JM) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Court in the case of Union of India V/s Dharmendra Textiles Processor and ors., 306 ITR 277 (SC) the penalty under the provisions of section 271(1)(c) is a civil liability and for attracting such civil liability willful concealment is not an essential ingredient. Hence, mens-rea is not required to levy penalty u/s 271(1)( c ) of the Act. Further he has also referred the case of Hon'ble Delhi High Court of CIT V/s Zoom Communication (327 ITR 510= 191 Taxman 179) and has stated that when there are disallowance of expenses and there is inaccurate computation made by assessee resulting into an act of paying less tax than what was due from it, the levy of penalty is justified. Hence, the assessee is in appeal for the assessment year 2007-08 before the Tribunal. 5. In respect of assessment year 2006-07, it is relevant to state that the AO while levying penalty at the rate of 100% on the disallowance of Rs.97,47,913/- made u/s 40(a)(ia) of the Act for non-deduction of TDS u/s 194C of the Act for the payments made to sub-contractor which comes to Rs.32,81,147/- has stated that the assessee concealed particulars of its income. In the First appeal, the ld. CIT(A) after considering the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2865/Ahd/2010 dated 22.2.2011 and the penalty levied by AO u/s 271(1)( c) of the Act on account of disallowance made u/s 40(a)(ia) of the Act for not deducting TDS on the payment made to the contractors was deleted by ld. CIT(A) and the Tribunal in the appeal filed by the department confirmed the order of ld. CIT(A) and dismissed the appeal of the department by observing that legal fiction created by s. 40(a)(ia) of the Act will not apply to the provisions of section 271(1)( c ) of the Act. That the disallowance made simply by invoking the provisions of section 40(a)(ia) of the Act will not attract penalty for furnishing of inaccurate particulars of income because there is no inaccurate particulars of income in the return as it is not a non-genuine or bogus claim of the assessee. That the disallowance is simply made either for non-deduction of TDS in view of provisions of u/s 40(a)(ia) of the Act or non-payment of TDS deducted to the Government Exchequer. He submitted that the decision squarely apply to the case of assessee and therefore the orders of authorities below for the assessment year 2007-08 be reversed and whereas the order of ld. CIT(A) for the assessment year 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194C/194I of the Act for the payments made, the disallowance has been made on account of technical fault and particularly legal fiction created by section 40(a)(ia) of the Act. We observe that all the details of the payments made by assessee to its sub-contractors have been disclosed in the return(s) filed but the disallowance has been made on the basis of particulars filed by assessee as the assessee failed to deduct TDS and therefore, the disallowance has been made in the assessment years under consideration of the amount claimed by assessee but it is not disputed by department that the assessee paid TDS in subsequent assessment years and the deduction was allowed to the assessee. It is not the case of the department that the assessee has claimed double deduction i.e. relevant to the assessment years under consideration when the payments were actually made and also in the subsequent assessment years when the TDS was paid. We observe that the assessee stated before the ld. CIT(A) that in the assessment year 2005-06 an addition was also made of Rs.32,68,774/- on account of non deduction of TDS vide assessment order dated 20.12.2007. Similar additions have been made in both the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were in any way bogus or inflated. We observe that the penalty has been levied by AO only because some disallowance has been made on account of non-compliance of provisions of Act. The Hon'ble Apex Court has held in the case of CIT V/s Reliance Petroproducts (P.) Ltd.(322 ITR 158)(SC) that so long as the assessee has not concealed any material fact or the factual information given by him is not found to be incorrect , he will not be liable for imposition of penalty u/s 271(1)(c) of the Act, even if the claim made by him is unsustainable in law provided he substantiated the explanation offered by him or explanation even if not substantiated, is found to be bonafide. Their Lordships has held that mere making of a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding income of the assessee and such claim made in the return cannot amount to furnishing inaccurate particulars of income. We also observe that the Hon'ble Jurisdictional High Court in the case of CIT V/s M/s. Aditya Birla Nova Limited (Successor), in Income Tax Appeal No.3899 of 2010, order dated 14.8.2012 after considering the decision of Hon'ble Apex Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS of contract payment, the ITAT, Ahmedabad Bench in the case of M/s Saraswati Construction Co (supra) has held that the provision of section 40(a)(ia) are deeming provision which creates legal fiction and that legal fiction cannot be extended beyond the disallowance of expenditure. Thus, it cannot be applied for invoking the provisions of section 271(1)( c ) of the Act for levying penalty for concealment of income or furnishing inaccurate particulars of income. The legal fiction cannot be extended any further and has to be limited to the area for which it is created and reliance was placed on the decisions of CIT V/s Kar Valves Limited (1987) 168 ITR 416 (Ker) and Addl. CIT V/s Durgamma P. (1987) 167 1TR 776 (AP). Finally penalty levied under section 271(1)(c) of the Act on account of disallowance made by invoking the provisions of section 40(a)(ia) was cancelled by ITAT, Ahmedabad. On similar issue, the Hon'ble Delhi High Court in the case of AT T Communication Services India (P) Ltd(supra) dismissed the appeal of the department which was filed against the order of the Tribunal when the penalty u/s 271(1)(c) of the Act was levied on account of disallowance by invoking the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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