In the absence of complete and convincing corroborative evidence, Revenue may justifiably disallow certain part of the expenses claimed by the assessee, but in the matter of penalty proceedings, the onus lies heavily on the Revenue to prove that the assessee had concealed its income or has filed inaccurate particulars of its income which the Revenue failed to prove that the claim of the expenses under the head wages to workers were non-genuine or were inflated by the assessee, hence penalty deleted

ITAT AHMEDABAD BENCH 'D'

IT Appeal Nos. 150 (Ahd.) of 2013 & 2609 (Ahd.) of 2010
[ASSESSMENT YEARS 2004-05 & 2005-06]

Deputy Commissioner of Income-tax, Circle -2, Surat...............................................Appellant.
v.
Abhishek Export ......................................................................................................Respondent

G.C. GUPTA, VICE-PRESIDENT
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER

Date :FEBRUARY 7, 2014

Appearances

K.C. Mathews for the Appellant.
K.K. Shah for the Respondent.

Section 271(1)(c) read with section 37(1) of the Income Tax Act, 1961 — Penalty — Concealment Penalty — In the absence of complete and convincing corroborative evidence, Revenue may justifiably disallow certain part of the expenses claimed by the assessee, but in the matter of penalty proceedings, the onus lies heavily on the Revenue to prove that the assessee had concealed its income or has filed inaccurate particulars of its income which the Revenue failed to prove that the claim of the expenses under the head "wages to workers" were non-genuine or were inflated by the assessee, hence penalty deleted

FACTS:

Various defects were pointed out by the AO in the assessment order with regard to the claim of the assessee for deduction of expenditure under the head "wages". He submitted that the assessee has claimed workers' wages to the tune of Rs.2,98,52,958/- in the accounts of the head office under the head "manufacturing expenses". AO found that the assessee was showing in garment account all the payments in cash for daily wages and no attendance register was found to be there. The vouchers produced for the verification by the assessee were also found unreliable. Disallowance at flat rate of 20% was made by the AO. Penalty proceedings were initiated and during the penalty proceedings, AO has given fresh opportunity to the assessee to prove its case, but the assessee failed to do so. AO submitted that in the case of non-genuineness of the expenses, the penalty should be imposed. On appeal by assessee, CIT(A) cancelled the levy of penalty. Being aggrieved, Revenue went on appeal before Tribunal.

HELD,

that disallowance at flat rate of 20% out of the expenditure claimed by the assessee under the head "wages to workers" was made due to cash payments made to the workers and certain defects in the supporting vouchers maintained by the assessee. These facts of the case may justify a certain amount of disallowance out of the expenditure of wages claimed by the assessee, but were not sufficient to justify imposition of penalty u/s 271(1)(c). Merely because certain expenses have been claimed by the assessee to have incurred in cash and were not supported by documentary evidence to the satisfaction of the Revenue authorities, it could not be said that the Revenue has proved that the expenses claimed were inflated or non-genuine. It was well settled that the parameters of judging the justification for addition made in the assessment case of the assessee was different from the penalty imposed on account of concealment of income or filing of inaccurate particulars of income and that certain disallowance/addition could legally be made in the assessment proceeding on the preponderance of probabilities, but no penalty could be imposed u/s 271(1)(c) on the preponderance of probabilities and Revenue has to prove that the claim of the expenses by the assessee was not genuine or was inflated to reduce its tax liability. No such material has been produced by the AO to suggest that the assessee has infact inflated its expenses or non-genuine expenses were claimed under the head "wages to workers". It was not a fit case to levy penalty u/s 271(1)(c) which was rightly cancelled by the CIT(A). In the result, appeal was answered in favour of assessee.

ORDER

G.C. Gupta, Vice-President - These two appeals of the Revenue for the assessment year 2005-2006 and 2004-2005 are directed against the order of the CIT(A). Since identical issue is involved in both these appeals, these are being disposed of with this consolidated order:

2. The only issue in these appeals preferred by the Revenue is regarding validity of penalty imposed under section 271(1)(c) of the Act.

3. The learned DR submitted that various defects were pointed out by the AO in the assessment order with regard to the claim of the assessee for deduction of expenditure under the head "wages". He submitted that the assessee has claimed workers' wages to the tune of Rs.2,98,52,958/- in the accounts of the head office under the head "manufacturing expenses". He submitted that the AO found that the assessee was showing in garment account all the payments in cash for daily wages and no attendance register was found to be there. The vouchers produced for the verification by the assessee were also found unreliable. The AO has observed that there were no voucher numbers of these vouchers and the addresses of the recipients were also not there. He submitted that voucher number mentioned in the cash book could not be tallied with the voucher number found in the bunch of vouchers. The learned DR submitted that the quantum appeal to the CIT(A) was unsuccessful, and the assessee did not file any further appeal to the Tribunal. He submitted that during the penalty proceedings, the AO has given fresh opportunity to the assessee to prove its case, but the assessee failed to do so. He submitted that in the case of non-genuineness of the expenses, the penalty should be imposed and relied on the decision in Vijay Proteins Ltd. v. Asstt. CIT [2004] 2 SOT 116 (Rajkot) and Shagoon Emporium v. ITO [1990] 48 Taxman 220 (Delhi) (Mag.). He relied on the order of the AO. He also relied on series of decisions in Tribhovandas Chelaram v. Asstt. CIT [2011] 16 taxmann.com 112/133 ITD 587 (Ahd.), Asstt. CIT v. Harvey Heart Hospitals Ltd. [2013] 32 taxmann.com 348/57 SOT 62 (Chennai) (URO), Sanghvi Swiss Refills (P.) Ltd. v. Asstt. CIT [2012] 28 taxmann.com 208/212 Taxman 66 (Bom.)(Mag.), Shyourajsingh B. Chauhan v. Asstt. CIT [2010] 41 SOT 453 (Ahd.), Sanjay Enterprises (P.) Ltd. v. ITO [2012] 17 taxmann.com 94/51 SOT 48 (URO) (Delhi), Om Prakash Gupta v. ITO [2002] 81 ITD 55 (Chd.), Dy. CIT v. Grey Cast Foundry Works [2006] 99 ITD 515 (Ahd.), New Holland Tractors (India) (P.) Ltd. v. ITO [2004] 4 SOT 35 (Delhi), MAK Data (P.) Ltd. v. CIT [2013] 358 ITR 593/38 taxmann.com 448 (SC).

4. The learned counsel for the assessee submitted that on account of cash payments in the wages account, the disallowance at flat rate of 20% was made by the AO and this is a clear case of certain disallowance made by the department. He submitted that the assessee had maintained vouchers for all the expenditure incurred under the head "wages to workers" and this has been admitted by the AO. The learned counsel for the assessee submitted that the assessee has declared higher GP at 21.77% during the year, as against 8.92% in the earlier years on the segment of garment sales. Regarding difference in the voucher numbers, he submitted that voucher number was generated by the computer, and therefore, could not tally with the number found on the voucher itself in the vouchers produced by the assessee. He submitted that the assessee has filed a detailed explanation, and there is no material on record to suggest that the explanation of the assessee was not bona fide. The learned counsel for the assessee submitted that merely because there was a disallowance made out of certain expenses claimed by the assessee, shall not justify the imposition of the penalty under section 271(1)(c) and submitted that the issue is squarely covered with the decision of the Hon'ble Apex court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322.

5. We have considered rival submissions carefully and perused the orders of the AO and the CIT(A) and the decisions cited at Bar. We find that it is a case of certain disallowance made out of the "wages to workers" on account of cash payments made to the workers and some defects in the maintenance of supporting vouchers. We find that the plea of the department that there was a discrepancy in the mention of voucher number is devoid of any merit, as the voucher number in the cash book was generated by the computer and that could not tally with the actual voucher number found in the voucher itself in the bulk of vouchers produced by the assessee. We find that the assessee has filed an explanation with regard to the payments made to the workers and the explanation of the assessee could not be said to be not bona fide. The assessee has shown better trading result during the relevant period as compared to the earlier years in the garments sales. The disallowance at flat rate of 20% out of the expenditure claimed by the assessee under the head "wages to workers" was made due to cash payments made to the workers and certain defects in the supporting vouchers maintained by the assessee. These facts of the case may justify a certain amount of disallowance out of the expenditure of wages claimed by the assessee, but are not sufficient to justify imposition of penalty under section 271(1)(c) of the Act. We find that in the absence of complete and convincing corroborative evidence, the Revenue may justifiably disallow certain part of the expenses claimed by the assessee, but in the matter of penalty proceedings, the onus lies heavily on the Revenue to prove that the assessee had concealed its income or has filed inaccurate particulars of its income. In this case, the Revenue has failed to prove that the claim of the expenses under the head "wages to workers" were non-genuine or were inflated by the assessee. Merely because certain expenses have been claimed by the assessee to have incurred in cash and were not supported by documentary evidence to the satisfaction of the Revenue authorities, it could not be said that the Revenue has proved that the expenses claimed were inflated or non-genuine. It is well settled that the parameters of judging the justification for addition made in the assessment case of the assessee is different from the penalty imposed on account of concealment of income or filing of inaccurate particulars of income and that certain disallowance/addition could legally be made in the assessment proceeding on the preponderance of probabilities, but no penalty could be imposed under section 271(1)(c) of the Act on the preponderance of probabilities and Revenue has to prove that the claim of the expenses by the assessee was not genuine or was inflated to reduce its tax liability. No such material has been produced by the AO to suggest that the assessee has infact inflated its expenses or non-genuine expenses were claimed under the head "wages to workers". The decisions relied upon by the Revenue are distinguishable since in these cases some corroborative evidence to support the charge of concealment of income or filing of inaccurate particulars of income was produced. The decision of the Hon'ble Apex Court in Reliance Petroproducts (P.) Ltd. (supra) is applicable to the facts of the case of the assessee. In these facts of the case, we hold that it is not a fit case to levy penalty under section 271(1)(c) of the Act, which was rightly cancelled by the CIT(A) and the grounds of the appeal of the Revenue being without any merit are dismissed.

6. In the result, the appeals of the Revenue are dismissed.