Sri Kamal Pandey, Hyderabad vs Assessee

Commissioner of Income Tax(Appeals)-18, Mumbai having

concurrent jurisdiction with CIT(A)-VI, Hyderabad dated 05-09-2013,

is on the issue of levy of penalty u/s.271(1)(c) of the Income Tax Act

(Act).

I.T.A. No. 1538 /Hyd/13 :- 2 -: Sri Kamal Pandey

2. Briefly stated, assessee an individual is in the business of

undertaking labour contracts. Assessee filed return of income

declaring total income of Rs.4,83,380/-. Assessment was completed

u/s.143(3) determining total income of Rs.7,09,130/- inter alia

making an addition of Rs.2,25,800/- as a disallowance of various

expenditure under wages account. This disallowance made by

Assessing Officer was accepted by assessee. Assessing Officer

initiated proceedings u/s.271(1)(c). During the proceedings, assessee

was asked to submit the Books of Accounts again to justify the

assessee's submission that there are genuine omissions which were

offered as income during the assessment. Assessing Officer noted

that assessee has tried to manipulate entries so as to show that

expenditure was claimed genuinely. He was of the opinion that there

are discrepancies, interpolation and over-writings done by the

assessee after the assessment was completed so as to avoid the

penalties. Accordingly,AO came to the conclusion that assessee has

deliberately furnished inaccurate particulars of income and levied

penalty of Rs.1,95,000/-.

3. Before the ld.CIT(A) it was the submission that the wage

register was prepared and maintained by staff incharge of respective

locations and assessee has supplied labour to sixteen industries,

some of which were situated outside the state also. Assessee being I.T.A. No. 1538 /Hyd/13 :- 3 -: Sri Kamal Pandey

proprietor had to necessarily depend upon some incharge person who

will maintain the records at a particular centre. It was further

submitted that assessee has not verified the Books of Accounts and it

was practically unable to verify each and every register owing to the

geographical distances of operational units. Assessee also explained

various additions made by AO to submit that these are genuine

mistakes which does not call for penalty u/s.271(1)(c). It was

further submitted that assessee has no intention of either

manipulating the registers or interpolating the registers that too after

assessment had been completed, agreeing for the additions as

proposed by the Assessing Officer. In view of this, it was submitted

that there is no need to levy penalty u/s.271(1)(c). The ld.CIT(A),

however, did not agree with the same. While noting that there are

specific discrepancies as discussed in the order, however, came to

the conclusion that assessee has willfully admitted to tamper with

the Books of Accounts to avoid payment of tax. Accordingly, he

confirmed the penalty levied by the Assessing Officer.

4. It was the submission of the ld.Counsel that the observations

of the Assessing Officer and the CIT(A) with reference to tampering of

books are not warranted. It was submitted that Assessing Officer

examined the books at the time of scrutiny, found out certain

discrepancies which the assessee accepted due to his inability to I.T.A. No. 1538 /Hyd/13 :- 4 -: Sri Kamal Pandey

verify each and every entry in the Books of Accounts. Ld. Counsel

explained the nature of additions made in the assessment to submit

that these are genuine mistakes happened in the course of business

and since assessee has accepted those discrepancies, there is no

need to levy any penalty. Ld. DR however, relied on the orders of the

Assessing Officer and CIT(A) to submit that assessee deliberately

tampered to the Books of Accounts in the course of penalty

proceedings and therefore levy of penalty is warranted.

5. We have considered the rival contentions and perused the

orders of authorities and paper book placed on record by the

assessee. There is no dispute with reference to the fact that assessee

is an individual and he supplies labour to various industries located

at sixteen places. There is also no dispute that assessee has units

outside the state also. As seen from the assessment order, the

Assessing Officer made additions by observing as follows:

The assessee's business is supplying of man power on contract basis for getting the brand name of the companies printed on gunny bags along with the date of production for cement companies. In response to notices of hearing, Sri R.R.Mittal, A.R. and the assessee appeared from time to time. They produced books of account and bills and vouchers for the expenditure claimed. On verification of the same it is found that against the payments of wages to the labourers in respect of the cement companies for the month of February, 2005 and March, 2005, the assessee debited the amount under wages account in excess of the actual shown in the acquittance registers as under:

I.T.A. No. 1538 /Hyd/13 :- 5 -: Sri Kamal Pandey

Month Actuals as Debited under Difference per register wages A/c Priya Non- 2/05 136400 146400 10000 Provident Fund

-do- 3/05 201500 221500 20000 Rain Industries, 3/05 179391 199391 20000 U-I with P.F. Priya Unit-II 3/05 157042 175042 18000 without P.F. Priyadarshini 3/05 97600 117600 20000 Kolhapur TOTAL: 88000

In respect of the Company, Chintamani Plastics, Aurangabad, the wages payments made for the month of January to March, 2005 to the tune of Rs.56,900/-, Rs.56,900/- and Rs.24,000/- were not proved with evidence and hence the same are disallowed for which both the assessee as well as Sri R.R.Mittal, AR of the assessee agreed for the addition.

As can be seen from the above, assessee did produce the Books of Accounts, bills and vouchers as maintained by him. Admittedly Assessing Officer found that there are certain additional amounts which are debited in some months and the difference on that was arrived an amount of Rs.88,000/-. Further, he also found out that assessee did not furnish the vouchers nor provided evidence, for the payments made in the month of January to March, 2005 totalling to Rs.1,37,800/-. Nowhere there is an allegation in the assessment order that assessee has manipulated or tampered with the records. We are unable to understand the need for assessee to tamper the registers after addition has been made in the assessment. The so called discrepancies that were noticed by the Assessing Officer in the penalty order were not figuring in the assessment order at all. Since there is no need for the assessee to make any changes in the registers, we are unable to understand how, even if subsequently tampered with the registers, would attract penalty on an amount made as agreed addition in the assessment order. At the time of I.T.A. No. 1538 /Hyd/13 :- 6 -: Sri Kamal Pandey

assessment order the books as maintained by assessee were produced and they were examined and then only agreed addition has been made. Since the addition is on agreed basis, we are of the opinion that no penalty is warranted. Even if one were to consider that this is not an agreed addition but it is suppression by way of claim of bogus expenditure, the same is not supported by record. In fact as seen from the order of the Assessing Officer, he did find out the difference between the figures of wages shown in the acquaintance registers which has come to Rs.88,000/-. This could be a genuine discrepancy of posting the entries, however, he has not examined whether there was any manipulation by the assessee either in the cash book or in other registers so as to siphon off funds from the business unit. It was the assessee's explanation that wages in respect of January, February and March in the case of Chintamani Plastics, Aurangabad were genuinely claimed. Since the place was outside the state, he could not furnish the vouchers during the assessment, so, the Assessing Officer disallowed an amount of Rs.1,37,800/- for non-production of vouchers/evidence of having spent the amount. It was the contention of the assessee that assessee has received amounts from the said company towards labour payment for these three months and without labour being provided there cannot be any receipts from the said company. This explanation of the assessee was not countered by any enquiry. We are of the opinion that just because certain expenditure claimed is not supported in the course of assessment proceedings, it will not lead automatically to concealment of income. Considering the order of the Assessing Officer, we are of the opinion that some disallowances made out of the claims made by the assessee, without proving them to be non-genuine, penalty u/s.271(1)(c) cannot be levied. There is neither concealment of income nor furnishing of I.T.A. No. 1538 /Hyd/13 :- 7 -: Sri Kamal Pandey

inaccurate particulars to that extent. Therefore, we cancel the penalty and allow the assessee's grounds.

6. In the result, appeal of assessee is allowed.

Order pronounced in open Court on 16th January, 2015.

Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 16th January, 2015.

TNMM

Copy to :

1. Sri Kamal Pandey, 16-11-16/202, Sripuram Colony, Malakpet, Hyderabad. C/o. Ch.Parthasarathy & Co., 1-1-298/2/B/3, 1st Floor, Sowbhagya Avenue, St.No.1, Ashok Nagar, Hyderabad-500 020.

2. The Income Tax Officer, Ward-9(1), Hyderabad

3. CIT(A)-18, Mumbai

4. CIT(A)-VI, Hyderabad

5. CIT-5/6, Hyderabad

6. D.R. ITAT, Hyderabad.