No Penalty leviable where disclosure made in audit report regarding non deduction of TDS

Decision of ITAT Delhi in case of New Horizon India Ltd. rendered on 5-5-2010

FACTS OF THE CASE

During the course of assessment proceedings, the Assessing Officer found that assessee had made certain payments, totalling Rs. 7.15 lakhs, on account of royalty, advertisement etc., on which tax at source had not been deducted. The auditors of the assessee had themselves quantified those payments as inadmissible under section 40(a)(ia); and the audit report was attached with the IT return. However, the same had not been reduced while computing the total loss for taxation purposes. The assessee had agreed to the disallowance with the condition that it will be allowed in the next year. The Assessing Officer held that as per the provision of section 40(a)(ia), the expenditure of Rs. 7.15 lakhs was not deductible. Hence, the Assessing Officer disallowed the same and gave further remark that as per the provision of section 40(a)(ia), the same will be allowable in the next assessment year, i.e., the year in which it would be paid by the assessee. On the above disallowance, penalty under section 271(1)(c) was also levied. The Commissioner (Appeals) confirmed the levy of penalty.

Held that

The question to be considered is whether the assessee is liable for penalty under section 271(1)(c). It is found that section 271(1)(c) postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. In the instant case, it is found that in the audit report accompanying with the return it was clearly mentioned that the amount of Rs. 7.15 lakhs was not admissible under section 40(a)(ia). Hence, there was neither any concealment nor furnishing of any inaccurate particulars. The assessee's case is that inadvertently the said amount was not reduced in the computation of income. It is also a settled law that the said amount is allowable in the year in which the TDS deducted is paid to the Government account. Hence, the Assessing Officer disallowed the same in the current assessment year and remarked that the same will be allowable in the next assessment year. It is held that the assessee cannot be held to be guilty of concealment or furnishing of inaccurate particulars of income.

Resultantly, the levy of penalty is deleted.

CASE REVIEW

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Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (para 9) followed.

Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC) (para 10) distinguished.

CASES REFERRED TO

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Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC) (para 6), Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (para 9), CIT v. Atul Mohan Bindal [2009] 317 ITR 1/183 Taxman 444 (SC) (para 10), CIT v.Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 11) and Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/161 Taxman 218 (SC) (para 11)