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2016 (9) TMI 502 - ITAT AHMEDABAD

2016 (9) TMI 502 - ITAT AHMEDABAD - TMI - Penalty u/s 271(1)(c) - Held that:- During the assessment proceedings, the assessee did not give any justification, rather, revised the return and reduced its claim of loss. Again during the penalty proceedings, the assessee did not give any explanation as to how mistake was occurred. Before the ld.CIT(A), it was contented by the assessee that a bona fide mistake was committed by the staff while preparing the statement of total income. According to the a .....

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a very small level. Its total turnover was ₹ 19 lakhs. Apart from that the assessee did not bother to go to AO to give any explanation. How the AO could verify that explanation given by the assessee was false or not ? Because no explanation was given. Similarly, the assessee failed to give any material which can substantiate its explanation as to how the mistake has happened. - Decided against assessee. - ITA.No.2034/Ahd/2012 - Dated:- 2-8-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER For The .....

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ectronically on 23.9.2008 declaring total loss of ₹ 12,41,455/-. The case of the assessee was selected for scrutiny assessment, and notice under section 143(2) of the Act was issued on 25.8.2009. On scrutiny of the accounts, it revealed to the AO that the assessee has debited sums of ₹ 9,15,505/- and ₹ 5,985/- under the head Prior Period Expenditure and Deferred Taxes . In order to verify the claim of the assessee, theld.AO had issued notice and directed the assessee to furnish .....

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us additions, and ultimately assessed the loss at ₹ 2,13,398/-. The AO has initiated penalty proceedings with regard to claim of prior period expenditure and alleged deferred tax liability. A show cause notice under section 274 r.w.s. 271(1)(c) of the Act was issued on 28.5.2010, which was duly served upon the assessee. The assessee did not file any explanation before the AO. The AO imposed penalty of ₹ 2,74,652/-. Appeal to the CIT(A) did not bring any relief to the assessee. 4. Bef .....

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claim prior period expenses and deferred tax liability, as Revenue expenses. He further contended that, though, explanation was not given to the AO in response to the notice received under section 274 r.w.s. 271(1)(c) of the Act, but in the appeal, the assessee has pleaded its case before the ld.CIT(A). Those submission can be considered as explanation of the assessee for absolving it from liability of penalty. In support of his contention, he relied upon the judgment of the Hon ble Supreme Cou .....

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re. The assessee has, thereafter, added the deferred tax and prior period items in statement of income. The ld.DR, on the other hand, submitted that filing of return was duly verified by the competent person, and thereafter, he put his signature. There is nothing on record to show as to how the mistake was committed by the assessee. 5. I have considered rival contentions and gone through the record carefully. Section 271(1)(c) of the Act has a direct bearing on the controversy, therefore, we tak .....

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** (iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits: Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act, (A) .....

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as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 6. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the qua .....

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without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation-1 to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) whe .....

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he computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the fa .....

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have been furnished. 7. Apart from the above, Explanation 4(a) to Section 271(1)(c) of the Act talks of notional evasion of taxes i.e. if there is reduction of loss declared in the return and in ultimate assessment order, then such reduced loss would be considered the amount on which taxes are sought to be evaded. This will bring an assessee at par with others in whose case Explanation 1 is applicable. 8. In the light of above, let us examine the case of the assessee. During the assessment proce .....

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ecause, the assessee company never wants to claim prior period expenditure and deferred tax liability as revenue expenditure, because they have not been debited to expenditure account. The onus upon the assessee was to demonstrate as to how mistake has occurred. How such a mistake could be alleged as a bona fide mistake ? The only explanation on that score is that the company is operating at a very small level. Its total turnover was ₹ 19 lakhs. Apart from that the assessee did not bother .....

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t of gratuity was made. The company itself has mentioned that this provision was not allowable under section 40A(7) of the Act. But inspite of that, while filing return, it has claimed as deduction. The AO has passed the assessment order under section 143(3) of the Act and allowed the deduction. The explanation given for the mistake has been noticed by the Hon ble Supreme Court in para-14 to 16 of the judgment, which read as under: 14. During the course of hearing this appeal against the judgmen .....

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