By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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S/s. 40(a)(ia), 271(1)(c)–Disallowance u/s. 40(a) (ia) does not attract penalty u/s. 271(1)(c). Making an incorrect claim in law does not tantamount to furnishing of inaccurate particulars of income. Levy of penalty is not justified merely because the assessee has claimed certain expenditure that expenditure is not eligible in view of the provisions of section 40 (a)(ia) of the Act and for that reason, expenditure is disallowed.
Facts: The Assessing Officer (AO) while assessing the total income of the assessee, a transport contractor, found that payment of freight was made without deducting tax at source. Accordingly, he disallowed the freight u/s. 40(a)(ia). The assessee did not challenge the addition and paid tax thereon. The AO also levied penalty u/s. 271(1)(c) with reference to the disallowance so made by him. Aggrieved, the assessee preferred an appeal to the CIT(A) who following the decisions of the Hyderabad `A’ Bench of the Tribunal in the case of ACIT vs. Seaway Shipping Ltd. (ITA No. 80H/2011, order dated 11th June, 2010) and Ahmedabad `D’ Bench of the Tribunal in the case of L.G. Chaudhary (2012-TIOL-205-ITAT-AHM) deleted the penalty.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held: The Tribunal noted that—
(a) the default for non-deduction of tax in respect of payment for freight charges was accepted by the assessee himself by filing letter dated 21-12- 2009 before the Assessing Officer;
(b) the Supreme Court has in the case of Suresh Chand Mittal (supra) observed that additional income offered by the assessee to buy peace and to come out of vexed litigation would be treated as bona fides;
(c) the issue with regard to levy of penalty u/s. 271(1)(c) on the plea of non-deduction of tax u/s. 40a(ia) has been considered by the coordinate Bench in the case of Seaway Shipping Ltd and L.G. Choudhary (supra) wherein exactly on the similar issue, levy of penalty was held to be not justified;
(d) Supreme Court in the case of Reliance Petro Products (P) Ltd. (322 ITR 158)(SC) has categorically observed that “By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars”.
The Tribunal confirmed the order passed by CIT(A) and decided the issue in favour of the assessee.
The appeal filed by the revenue was dismissed.
