A.B. Sugars Ltd., Chandigarh vs Department Of Income Tax

ld. CIT(Appeals) Chandigarh dated 01.04.2013 for

assessment year 2006-07 challenging the cancellation of

penalty under section 271(1)(c) of the Income Tax Act.

2. Briefly the facts as noted in the impugned order are

that the Assessing Officer while framing the assessment 2

under section 143(3) of the Act made the following

additions :

i) Rs. 4,35,457/- on account of disallowance of certain expenses under section 40(a)(ia) of the Act.

ii) Total disallowance of Rs. 7,85,336/- ( Rs.

7,19,513/- + Rs. 65,823/-) under section 14A of the Act.

Notional interest of Rs. 20,40,000/- was also added by passing rectification order under section 154 of the Act.

3. The Assessing Officer has levied penalty under section

271(1)(c) of the Act on all these additions which were

challenged before ld. CIT(Appeals).

4. The assessee, as regards disallowance of expenses

under section 40(a)(ia) of the Act and levy of the penalty

submitted that several benches of the Tribunal have given

decision for and against the assessees and so the issue has

become debatable. The ld. CIT(Appeals) noted that in the

case of the assessee, the assessee had not deducted tax on

certain payments, so the addition was made under section

40(a)(ia) of the Act. Therefore, assessee cannot be said to

have deliberately furnished inaccurate particulars of

income. The ld. CIT(Appeals) relied upon decision of ITAT

Delhi Bench in the case of AT & T Communication Services

(India) Pvt. Ltd. 42 DTR 22 in which it was held that the

disallowance made by invoking provisions of Section

40(a)(ia) cannot be a ground to levy penalty under section 3 271(1)(c) of the Act. The assessee has not failed to

disclose fully and truly all material facts. Therefore, ratio

of the above judgement squarely apply and that since

entire amount was added for non-deduction of tax,

therefore, it is not a case of concealment of income or

furnishing inaccurate particulars of income. Accordingly,

penalty on this item was cancelled and appeal of the

assessee was allowed.

5. On disallowance under section 14A of the Act, the

assessee submitted before ld. CIT(Appeals) that notional

expenditure was disallowed under section 14A of the Act so

no penalty was leviable and relied upon decision of the

Hon'ble Supreme Court in the case of Reliance

Petroproducts Pvt. Ltd. 322 ITR 158 (S.C). The ld.

CIT(Appeals) found that the disallowance of expenses under

section 14A of the Act has been made by the Assessing

Officer on proportionate/estimated basis. The assessee

had not concealed the particulars of its income or had not

furnished inaccurate particulars of income so as to levy the

penalty. The ld. CIT(Appeals) relied upon decision of

Hon'ble Supreme Court in the case of Reliance

Petroproducts Pvt. Ltd. (supra) and cancelled the penalty.

6. With regard to disallowance of notional interest and

security deposit to NHAI, on which penalty was also levied,

ld. CIT(Appeals) noted that the disallowance made by

Assessing Officer under section 154 of the Act has been

deleted by him vide order dated 28.06.2012, therefore since 4

addition has been deleted, penalty would not survive. The

ld. CIT(Appeals), accordingly, cancelled the penalty and

allowed the appeal of the assessee.

7. The ld. DR relied upon order of the Assessing Officer,

on the other hand, ld. counsel for the assessee reiterated

the submissions made before authorities below and also

placed on record copy of order of ITAT Chandigarh Bench

in the case of the same assessee for assessment year

2006-07 and 2007-08 dated 27.11.2013 in ITA 1120/2010

etc. The ld. counsel for the assessee, referring to the

order of the Tribunal on quantum submitted that with

regard to addition of Rs.4,35,457/- under section 40(a)(ia)

of the Act, the Tribunal held that Section 194C would apply

only if the payment made exceeds Rs. 20,000/- and since

freight payment has been made only for Rs. 20,000/-,

therefore TDS provision under section 194C of the Act

would not apply with respect to this payment of freight.

7(i) The ld. counsel for the assessee with regard to

disallowance under section 14A of the Act on the amount of

Rs. 7,19,512/- submitted that the Tribunal in the same

order dated 27.11.2013 restricted the disallowance to Rs. 1

lac only by holding that Rule 8D would be applicable from

assessment year 2008-09. He has also submitted that with

regard to addition of Rs. 656,823/- under section 14A, the

Tribunal has deleted the addition holding that on earning

agriculture income hardly any administrative expenses

would be required to be spent. The ld. counsel for the 5

assessee, therefore, submitted that since substantial

additions have already been deleted by the Tribunal and

that only small additions are left only on estimate basis,

therefore, ld. CIT(Appeals) was justified in canceling the

penalty.

8. We have considered the rival submissions and do not

find any justification to interfere with the order of the ld.

CIT(Appeals) in canceling the penalty under section

271(1)(c) of the Act. The ld. counsel for the assessee by

referring to the order of Tribunal on quantum in the case

of the assessee submitted that the Tribunal has deleted

part of the addition under section 40(a)(ia) of the Act and

substantially reduced the disallowance under section 14A

of the Act. The assessee has disclosed all the facts in the

return of income and disallowance under section 40(a)(ia)

was made because no TDS was deducted and that Tribunal

held that provisions of Section 14A read with Rule 8D

would be applicable from assessment year 2008-09 and

made reasonable estimated disallowance of Rs. 1 lac. The

notional interest has already been deleted by the ld.

CIT(Appeals).

9. Considering the facts and circumstances noted above,

it is clear that penalty was levied for mere disallowance of

expenses on estimate basis which would not lead to

inference that assessee has concealed the particulars of

income or furnished inaccurate particulars of income. The

ld. CIT(Appeals) rightly placed reliance upon the decision 6

of the Hon'ble Supreme Court in the case of Reliance

Petroproducts Pvt. Ltd. (supra) for canceling the penalty.

We, therefore, do not find any merit in the departmental

appeal. The same is accordingly, dismissed.

10. In the result, departmental appeal is dismissed.

Order pronounced in the Open Court on 3rd July,2015.

Sd/- Sd/-

(T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 3rd July,2015. 'Poonam' Copy to:

The Appellant, The Respondent, The CIT(A), The CIT,DR

Assistant Registrar, ITAT Chandigarh