Sec. 271(1)(c) of Income Tax Act, 1961— Penalty —Levy of penalty u/s 271(1)(c) is not valid in law in view of non-striking of the inappropriate words in the penalty notice.

Facts: Assessee company is engaged in the business of manpower supply and operational support and filed its return of income declaring an income of Rs. 33,89,810/-. AO, on examination of the balance sheet, noted that the assessee has claimed other liabilities at Rs. 4,61,10,276/- under the head ‘Current liabilities.’ On being asked by the AO to furnish the complete details of such ‘other liabilities’ the assessee subsequently filed a revised computation of income wherein it included an amount of Rs. 1,45,61,540/- being amount disallowable u/s 43B due to nonpayment of service tax. The AO noted from the tax audit report that there is clear mention of this amount as having not been paid within the stipulated time period and disallowable u/s 43B . Since the tax audit report was not furnished along with the return of income, the AO held that it was a deliberate attempt on the part of the assessee to suppress the amount. The AO, thereafter, completed the assessment at a total income of Rs. 1,79,51,350/- wherein he made an addition of Rs. 1,45,61,540/- being the service tax disallowable u/s 43B. The assessee did not prefer any appeal against the order of the AO. Subsequently, the AO initiated penalty proceedings u/s 271(1)(c). In appeal, the CIT(A) upheld the penalty so levied by the AO. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.

Held, that ld. Counsel for the assessee, referred to a copy of notice issued u/s 274 r.w. section 271 and he submitted that the inappropriate words in the said notice have not been struck off by the AO. Levy of penalty u/s 271(1)(c) is not valid in law in view of non-striking of the inappropriate words in the penalty notice. The issue as to addition u/s 43B on account of non-payment of service tax liability when the same has not been debited in the Profit & Loss Account nor claimed as an expenditure has become a debatable issue. It has been held in various decisions that penalty u/s 271(1)(c) is not leviable on account of additions which are debatable issues. Therefore, penalty u/s 271(1)(c) is not leviable and penalty proceedings were set aside. - C.S. DATAMATION RESEARCH SERVICES PVT. LTD. V/s ITO - [2020] 26 ITCD Online 055 (ITAT-DELHI)