Sri Lakshmi Narayana Appavaru, ... vs Department Of Income Tax

Dy. Commissioner of Income- V/s. Shri Lakshmi Narayana Appavaru, tax Circle 10(1), Hyderabad Secunderabad.

(PAN - AAYPA 9025 D ) (Appellant) (Respondent)

Cross Objection No.13/Hyd/2015 (in ITA No.120/Hyd/2015) : Assessment year 2010-11

Shri Lakshmi Narayana V/s. Dy. Commissioner of Income-tax Appavaru, Secunderabad. Circle 10(1), Hyderabad

(PAN - AAYPA 9025 D )

(Cross objector) (Appellant in Appeal)

Department by : Shri Rajat Mitra DR

Assessee by : Smt. Sreelata

Date of Hearing 27.4.2015 Date of Pronouncement 29.4.2015

ORDER

Per G.C.Gupta, Vice President:

This appeal by the Revenue and cross objection by the assessee for the assessment year 2010-11 are directed against the order of the Commissioner of Income-tax(Appeals) VI, Hyderabad. These are being disposed of with this consolidated order.

2 ITA No.120/Hyd/2015 & CO therein Shri Lakshmi Narayana Appavaru, Secunderabad

ITA No.120/Hyd/2015(Revenue's Appeal)

2. Grounds of appeal of the Revenue are as under-

"1. The CIT(A) erred on facts and in law.

2. The Ld. CIT(A) ought not to have deleted a part of penalty since the primary onus was not at all discharged by the assessee, and the expenditure was not established with evidence as incurred.

3. The Ld. CIT(A) ought to have seen that the assessee knowingly claimed expenditure that was clearly disallowable U/s. 40(a)(ia) of the Act, thereby inflating the expenditure claimed and when confronted, offered the same to tax.

4. The Ld. CIT(A) ought to have appreciated the fact that no relief can be awarded to the assessee as per the ratio of the landmark judgment of the Apex Court in the case of Dharmendra Textile Processors (306 ITR 287), which is squarely applicable to the facts of the assessee's case."

3. The Learned Departmental Representative has relied on the orders of the Assessing Officer. He referred to the relevant portion of the order of penalty passed by the Assessing Officer.

4. The learned counsel for the assessee submitted that the assessee is in the business of mining in Warangal District and the business is mainly labour oriented and certain disallowances were made by the Assessing Officer for which penalty under S.271(1)(c) of the Act has been levied by him. The Assessing Officer has also levied penalty on disallowance under S.40(a)(ia). She submitted that the disallowances were made on account of estimation and also on account of failure to deduct taxes and all the facts relating to the said disallowance were very much borne on record and the disallowances have been made on estimation or on technical grounds. Assessee has relied on the order of the CIT(A).

3 ITA No.120/Hyd/2015 & CO therein Shri Lakshmi Narayana Appavaru, Secunderabad

5. We have considered the rival submissions and perused the orders of the Assessing Officer and the CIT(A). We find that the business of the assessee is that of mining in Warangal district and was incurring substantial expenses towards labour payments, as the business of the assessee is labour oriented. Certain disallowances were made on ad-hoc basis by way of estimation only. Some other amounts were disallowed on account of failure of the assessee to deduct taxes at source. We find that all the facts material for the assessment were disclosed by the assessee at the time of assessment itself. It was on the basis of the record supplied by the assessee on the basis of which certain disallowances were made by the Assessing Officer. Merely because certain disallowances were made on estimation basis or due to non- deduction of tax at source. it could not be said that the assessee is guilty of concealment of income or filing of inaccurate particulars of income. The issue is covered in favour of the assessee with the decision of the Hon'ble Apex Court in the case of Reliance Petro Products Ltd. (322 ITR 158). Accordingly, we hold that there is no mistake in the order of the CIT(A) on this issue, which is accordingly confirmed and the grounds of appeal of the Revenue are dismissed.

Cross Objection No.13/Hyd/2015 of the assessee:

6. Grounds of the assessee in the cross objection are as under-

 On the facts and circumstances of the case and in law the order of the ld. CIT(A) passed U/s. 250 of the I.T. Act, 1961 was unjustified.

4 ITA No.120/Hyd/2015 & CO therein Shri Lakshmi Narayana Appavaru, Secunderabad

 The Ld. CIT(A) has upheld penalty U/s.

271(1)(c) of the I.T. Act, 1961, on the addition made towards unilateral writing off of trading liability and treated as income u/s.41(1), which involves neither concealment nor furnishing inaccurate particulars of income."

7. Learned counsel for the assessee submitted that the CIT(A) has confirmed the penalty under S.271(1)(c) of the Act on the addition made towards unilateral writing off of the trade liability treated as income under S.41(1)of the Act by the assessee. She submitted that mostly labourers are from Bihar and Orissa and there were outstanding liabilities of payments to be made to labourers and due to their not coming back to claim the outstanding amounts due to them, the assessee itself unilaterally written off the said amount and offered the same for taxation in the assessment year 2010-11. She submitted that the assessee's bona fides are established as it has offered voluntarily similar amount of outstanding liabilities for tax purposes in the subsequent assessment year 2014-15 also.

8. The Learned Departmental Representative has relied on the order of the Assessing Officer and the CIT(A).

9. We have considered the rival submission and perused the orders of the Assessing Officer and the CIT(A). We find that the claim of the assessee that the amount of outstanding trade liability representing amounts payable to the labourers was written off by the assessee unilaterally and was offered for taxation voluntarily by the assessee, could not be controverted on behalf of the Revenue. The assessee's claim that it has similarly offered for taxation the outstanding labour payments in the subsequent assessment year 2014-15 also by writing off the amount unilaterally shows the bona 5 ITA No.120/Hyd/2015 & CO therein Shri Lakshmi Narayana Appavaru, Secunderabad

fide conduct of the assessee. The facts relevant to assessment were disclosed by the assessee in the return of income filed with the department. The assessee has filed statement of account alongwith the computation of income for the assessment year 2014-15, wherein it has offered the amount outstanding to the creditors as deemed income under S.41(1) of the Act. In these facts of the case, we are of the view that the conduct of the assessee is bona fide and all material facts relevant to assessment were disclosed by the assessee, and the amount in question was offered for taxation for the relevant year as well as subsequent assessment year 2014-15 voluntarily under S.41(1) of the Act. No case for levy of penalty under S.271(1)(c) of the Act could be made out by the revenue. Accordingly, the penalty levied under S.271(1)(c) of the Act on this count is cancelled and the grounds of Cross Objection of the assessee are allowed.

10. In the result, appeal of the revenue is dismissed and the Cross Objection of the assessee is allowed.

Order pronounced in the court on 29th April, 2015 Sd/- Sd/-

(P.M.Jagtap) (G.C.Gupta) Accountant Member Vice President

Dt/- 29th April, 2015 Copy forwarded to:

1. Shri Lakshmi Narayana Appavaru, Prop: Lakshmi Narayana Minerals, Plot No.5, Road no.1, Jupiter Colony, Cantonment Area Secunderabad.

2. Dy. Commissioner of Income-tax Circle 10(1), Hyderabad

3. Commissioner of Income-tax(Appeals) VI Hyderabad

4. Commissioner of Income-tax V Hyderabad Departmental Representative, ITAT, Hyderabad. B.V.S