Income Tax Appellate Tribunal - Mumbai
Ass Cit 8(3)(2), Mumbai vs Wire And Wirless Tisai Satellite Ltd, ... on 13 June, 2018
1
ITA 09/Mum/2016
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "G", MUMBAI
Before Shri Joginder Singh(JUDICIAL MEMBER)
AND
Shri G Manjunatha (ACCOUNTANT MEMBER)
I.T.A No.09/Mum/2016
(Assessment year: 2011-12)
ACIT-8(3)(2), Mumbai vs M/s Wire and Wireless Tisai
Satellite Ltd, 4th Floor, Madhu
Industrial Estate, P. Budhkar Marg,
Worli, Mumbai-13
PAN : AAACW7197D
APPELLANT RESPONDENT
Appellant by Shri M.V. Rajguru
Respondent by Shri Mitesh J Thakkar
Date of hearing 26-04-2018
Date of pronouncement 13-06-2018
ORDER
Per G Manjunatha, AM :
This appeal filed by the revenue is directed against the order of the CIT(A)-14, Mumbai dated 23-10-2015 and it pertains to AY 2011-12. The revenue has raised the following grounds of appeal:-
(i) The Learned CIT(A) has erred on facts and in law in cancelling the penalty levied by A O of Rs 1,79,93,261/-/-, under section 271(l)(c) r.w. Explanation 1A of the Income Tax Act, without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer.
(ii) The learned CIT(A) erred in cancelling penalty levied u/s 271(l)(c) r.w. Explanation 1A of the Act on the disallowance u/s 40(a)(ia) of the Act, without appreciating that the impugned penalty imposed was on account of default hi deduction of tax at source on management fees paid and that the assessee had filed inaccurate 2 ITA 09/Mum/2016 particulars which had the effect of reducing its tax liability.
2. The brief facts of the case are that the assessee company is engaged in the business of cable network services, filed its return of income for AY 2011-12 on 29-09-2011 declaring total loss of Rs.2,44,43,963. The assessment has been completed u/s 143(3) on 19- 02-2014 determining the total income at Rs.2,97,24,120 wherein addition has been made towards management fees paid u/s 40(a)(ia) for failure to deduct tax u/s 194J of the Act and also non reconciliation of AIR mismatch amounting to Rs.1,63,366.
3. Subsequently, the AO initiated penalty proceedings u/s 271(1)(c) and issued show cause notice u/s 274 r.w.s. 271(1)(c) and called upon the assessee to explain as to penalty shall not be levied for furnishing inaccurate particulars of income in respect of disallowance u/s 40(a)(ia) towards management fees paid for failure to deduct tax at source u/s 194J as the same has been reported by the tax auditor in his tax audit report column 17 of form 3CD and also the assessee has filed necessary particulars about the payment in the return of income filed u/s 139(1). The assessee further submitted that mere disallowance of certain expenses would not lead to an inference that the assessee has furnished inaccurate particulars of income which comes within the deeming provisions of Explanation (1A) of section 271(1)(c). The 3 ITA 09/Mum/2016 assessee further submitted that the moment the AO has pointed out the lapses in compliance with TDS provisions on the basis of tax audit report, the assessee has accepted such lapses and said that although it has accepted the report of the tax auditor by omission, the same has not been added back in the statement of total income which cannot be considered as deliberate attempt to furnish inaccurate particulars of income so as to evade payment of taxes. The AO, after considering submissions of the assessee observed that as per Explanation (1A) of section 271(1)(c), any person, who failed to offer valid explanation, the amount added directly on indirectly to the total income of an assessee is deemed to represent the income of which particulars of income is concealed by the assessee. Since the assessee has not offered any valid explanation for the penalty valid explanation for the default, the AO opined that the assessee has deliberately concealed particulars of income by furnishing inaccurate particulars of income by furnishing inaccurate particulars with an intention to evade tax liability and hence it is a fit case for levy of penalty u/s 271(1)(c) and accordingly levied penalty of Rs.1,79,93,261 which is 100% of tax sought to be evaded.
4. Aggrieved by the penalty order, the assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has reiterated its submissions made before the AO. The assessee further submitted that 4 ITA 09/Mum/2016 non filing of any explanation or non filing of appeal against addition made by the AO does not mean that the assessee is guilty of either furnishing inaccurate particulars of income or concealed particular of income with an intention to evade payment of taxes. The assessee further submitted that the AO has failed to appreciate the fact that the tax audit report was filed along with the return and tht it unequivocally stated that the management fees and provision for payment of gratuity was not allowable u/s 40(a)(ia) and 40A(7) of the Act respectively indicate that the assessee has made a computation error in its return of income. Therefore, no adverse inference can be drawn against the assessee merely for the reason that there is an addition to the returned income which attracts deeming provision of Explanation (1A) to section 271(1)(c) of the Act. In this regard relied upon the decision of Hon'ble Supreme Court in the case of Pricewater Cooper Pvt Ltd vs CIT 348 ITR 306 (SC). The Ld.CIT(A), after considering relevant submissions of the assessee and also by following the decision of ITAT, Mumbai Bench "E" in the case of Satyajeet Movies Pvt Ltd vs ACIT in ITA No.6036/Mum/2011 dated 21-02-2014 held that no penalty can be levied u/s 271(1)(c) if the assessee has filed necessary details alongwith return of income in respect of disallowance made u/s 40(a)(ia). The CIT(A) further observed tht once genuineness of the expenses and quantum of 5 ITA 09/Mum/2016 payment have not been doubted and disallowance has been made on the ground of technical or venial breach, for non deduction of tax at source, would not automatically leads to imposition of penalty u/s 271(1)(c); therefore, opined that no penalty can be levied for addition of Rs.5 crores made u/s 40(a)(ia) of the Act for failure to deduct TDS. However, confirmed penalty levied by the AO in respect of disallowance in respect of addition made towards non re-conciliation of AIR mismatch and addition towards gratuity provision u/s 40A(7) of the Act. The relevant portion of the order of the CIT(A) is extracted below:-
"3.1 During the appellate proceedings, lhc Ld.AR submitted that as regards penalty imposed against the additions made u/s.40(a)(ia) of the Act, the same is not leviable in view of (he judgement of Hon'ble ITAT 'R* Bench, Mumbai in the case of Satyajeet Movies Pvt. Ltd. vs. ACIT, ITA No.6306/Mum/2011, AY.2005-06 dated 21/02/2014 and also enclosed a copy of the judgement. I have gone through the same. It is noted that the Hon'ble ITAT, Mumbai, against the additions made u/s.40(a)(ia) of the Act, observed that the genuineness of these expenses and quantum of payment have not been doubted and disallowance has been made only on the technical default on non-deduction of TDS for which there is separate provisions for levy of interest and penalty, under the Act. Penalty u/s.271(l)(c) can be levied only, if the assessee has concealed particulars of income or furnished inaccurate particulars of income. Once such payment have not been doubted, such penalty cannot be levied u/s.271(l)(c) of the Act. The fact of this case is identical in which the quantum of the payment or the "t genuineness of the payment have not been doubted and addition has been made on technical default of TDS, therefore in the light of the decision given by the Hon'ble ITAT (Supra), the penalty levied against the addition of Rs.5.4 crores u/s.40(a)(ia) of the Act, is cancelled.
3.2 During the appellate proceedings, the Ld.AR, has submitted that lenient view can be taken against the addition made on account of discrepancies in the AIR statement, however, no reconciliation statement could be filed, even during the proceedings, therefore the contention of the Ld.AR is not acceptable and penalty against this addition is confirmed as evidently there is an instance of filing inaccurate particulars of income resulting into concealment of income. Similarly, no submission is made regarding the additions made on account of 40(a)(7) of the Act. As per the copy of the assessment order filed during the course of appellate proceedings, it is noted that the auditor has noted that the payment of gratuity amounting to Rs.3715/- is not allowable u/s.40(a)(7) of the Act. However, despite this, the assessee has not added back this amount in the computation of income. In view of the 6 ITA 09/Mum/2016 facts of the case, I am of the opinion, that penalty u/s.27 1( l)(c) of the Act is leviable against the additions made u/s.40(a)(7) of the Act. also and it is hereby confirmed."
5. The Ld.DR submitted that the Ld.CIT(A) was erred in deleting penalty levied u/s 271(1)(c) r.w.s. Explanation (1A) of the Act without properly appreciating the fact brought out by the AO that the assessee has failed to offer any explanation for not adding disallowance of management fees quantified by the auditor in his tax audit report u/s 40(a)(ia) of the Act even though such payment is not actually deductible. The Ld.DR further submitted that the act on the part of the assessee not to take cognizance of the auditors' comments deserves to be penalised for the reason that if scrutiny proceedings are not taken place, the same would have remained distant mystery and the revenue would not have detected the violation. Therefore, the AO has rightly levied penalty u/s 271(1)(c) for addition towards disallowance of expenses u/s 40(a)(a) and his order should be upheld.
6. The Ld.AR for the assessee, on the other hand, submitted that no penalty can be levied u/s 271(1)(c) for a technical or venial breach of non deduction of tax at source when assessee has furnished complete details of payment in return of income and also the auditor has qualified such disallowance in his tax audit report. At the best, the mistake committed by the assessee can be considered as a human error for 7 ITA 09/Mum/2016 which rigors of provisions of section 271(1)(c) cannot be invoked. The CIT(A), after considering relevant submissions has rightly deleted penalty levied u/s 271(1)(c) and his order should be upheld.
7. We have heard both the parties and perused the materials available on record. The factual matrix of the case which lead to levy of penalty u/s 271(1)(c) are that during the financial year relevant to AY 2011-12, the assessee has paid management fees to Wire and Wireless India Ltd and M/s Tisai Satellite Services amounting to Rs.5.4 crores without deduction of tax at source u/s 194J of the Income-tax Act, 1961. The tax auditor has quantified defaults in deduction of TDS u/s 194J and issued a qualified report by stating that management fees paid without deduction of tax at source is not deductible u/s 40(a)(ia) of the Act. The AO levied penalty u/s 271(1)(c) on the ground that the assessee has not offered any valid explanation for the default committed in compliance of TDS provisions. The AO further observed that as per explanation (1A) of section 271(1)(c) any person, who fails to offer valid explanation in respect of any addition, the amount added directly or indirectly to the total income of an assessee is deemed to represent the income of which particulars of income is concealed by the assessee. It is the contention of the assessee that it has neither concealed particulars of income nor furnished inaccurate particulars of income which is evident from the facts 8 ITA 09/Mum/2016 gathered by the AO in his order that the tax auditor has reported non deduction of TDS on management fees and the tax auditor has mentioned in his tax audit report about inadmissibility of payment made for failure to deduct TDS. The assessee contended that the assessee is not guilty of furnishing of inaccurate particulars of income with an attempt to deliberately concealing particulars of income.
8. Having heard both the sides, we find merit in the argument of the assessee for the reason that mere disallowance of certain expenses during assessment proceedings does not attract penalty provisions u/s 271(1)(c) if such disallowance is made for technical of venial breach of TDS provisions. The Hon'ble Supreme Court in the case of Pricewater Cooper Pvt Ltd vs CIT (supra) held that penalty for concealment cannot be levied in case of bona fide / inadvertent / human error. The Hon'ble Gujarat High Court in the case of CIT vs L.G. Choudhari (2013) 33 Taxman.com held that where the expenditure is disallowed due to failure to deduct TDS or late deposit of TDS, no penalty is leviable u/s 271(1)(c) on the ground that disallowance shall, at the most, a technical default, there being nothing to indicate any concealment of income. The co- ordinate bench of ITAT, MumbaI Bench "E" in the case of Satyajeet Movies Pvt Ltd (supra) held that no penalty can be levied u/s 271(1)(c) for any addition made u/s 40(a)(ia) for failure to deduct TDS, once such 9 ITA 09/Mum/2016 payment has not been doubted. At the best, the default committed by the assessee can be termed it as technical or venial breach for which rigors of penalty provisions cannot be invoked. The Ld.CIT(A), after considering relevant submissions, has rightly deleted penalty levied by the AO in respect of addition made u/s 40(a)(ia) of the Act. The revenue failed to bring on record any contrary decision to counter the findings of facts recorded by the Ld.CIT(A). Hence, we are inclined to uphold the findings of CIT(A) and dismiss appeal filed by the revenue.
9. In the result, appeal filed by the revenue is dismissed. Order pronounced in the open court on 13th June, 2018.
Sd/- sd/-
(Joginder Singh) (G Manjunatha)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dt : 13th June, 2018
Pk/-
Copy to :
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
/True copy/ By order
Sr.PS, ITAT, Mumbai