Penalty 2711c – Pending Petition us 154 to be disposed off first and penalty be dropped if assessees claim as per rectification petition found correct-ITAT

Penalty 2711c – Pending Petition us 154 to be verified/disposed off first and penalty be dropped if the claim of the assessee as per rectification petition was found correct-ITAT

ABCAUS Case Law Citation:
950 2016 (06) ITAT
AY: 2006-07
Date of Judgment: June, 2016

Brief Facts of the Case:
The assessee company was carrying on the business of manufacture of readymade garments. For the relevant assessment year it filed return of income declaring income of Rs. NIL after set off of brought forward losses. After processing the return of income, the case was converted into scrutiny. The company had made an addition to the fixed assets.  The assessee was asked to produce bills/vouchers in support of its claim of purchase of assets. However, in spite of several opportunities, assessee failed to produce the bills with respect of the following assets:

1. Boiler Rs. 4,46,000/-
2. Other Plant & Machinery Rs. 45,560/-
3. Sewing Machines Rs. 3,26,396/-
4. Electrical fittings Rs.32,60,196/- 

Consequently, the depreciation claim on the above said assets was disallowed and added to the returned income of the assessee company. The non production of bills for the fixed assets was treated by the AO as furnishing of inaccurate particulars of income and accordingly proceedings u/s 271(1)(c) of the Act were initiated. 

In response to the notice issued by the AO, the assessee contended that it was only the AO’s view that evidence produced in the form of vouchers were not up to the desired level and there was a difference of opinion with regard to the nature of evidence accepted by the revenue. It was also submitted that purchase of assets was evidenced by debits to the assets account in books of account.

However, the AO rebutted the contentions of the assessee  in view of that the assessee was given enough opportunity to produce the bills and the assessee failed to do so and that mere entries made in the books of account does not prove the existence of assets. AO also held that there was a complete lack of evidence and there was no question of difference of opinion. Thus rejecting the submissions of the assessee, the AO levied the penalty of Rs. 80,000/- u/s 271(1)(c) of the Income Tax Act, 1961.

Aggrieved with the above order, the assessee company preferred an appeal before the CIT(A) and brought to his notice that the petition u/s 154 which was filed much before the the order u/s 271(1)(c) has not been disposed off. However, CIT(A) confirmed the penalty.

Aggrieved with the above order of CIT(A), the assessee went in the present appeal before the Tribunal.

Contentions of the Assessee:
The assessee submitted that it had filed a petition u/s 154 before the AO with supporting vouchers/bills in support of the purchase of the above fixed assets. He submitted that assessee has not received any communication relating to the petition filed u/s 154 whereas as per the provisions of section 154(8), AO should have passed an order within a period of six months from the end of the month in which the application was received by him. That all the bills for the addition of fixed assets were already submitted along with the petition u/s 154, there was no concealment of income. Also in the subsequent AYs, depreciation claim of the assessee had been accepted by the AO.

Excerpts from ITAT Judgment: 

……….. we are of the view that on the record submitted by the assessee, relevant supporting bills/vouchers were already submitted before the AO and which were not duly acknowledged by the AO by passing order u/s 154 of the Act. However, it was not clear whether the bills/vouchers submitted by the assessee are in order. Therefore, in the interest of justice, we deem it fit and proper to remit the matter back to the file of the AO to dispose of the petition u/s 154 and also determine the correctness of claim of the assessee. In case the claim of the assessee is found to be correct, the penalty levied u/s 271(1)(c) may be dropped. 

Penalty 2711c - Pending Petition us 154

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