SAMPATKUMAR KALYANRAO MUCHALAMBI,BELAGAVI V. INCOME TAX OFFICER, NFAC, DELHI

ITA 128/PAN/2024

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The case revolves around the penalty imposed on Sampatkumar Kalyanrao Muchalambi by the Income Tax Officer (ITO) under Section 270A for misreporting income due to disallowed commission expenses. The assessee, engaged in the distribution of newspapers and advertisement services, had his commission expenses partially disallowed based on estimations from previous years' percentages. The CIT(A) upheld the penalty, leading to the appeal before the Tribunal. The Tribunal, referencing decisions from the Karnataka High Court and the Supreme Court, concluded that the penalty was not justified as the disallowances were made on an estimation basis and there was no evidence of misrepresentation or suppression of facts by the assessee.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 32365 (ITAT-PANAJI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: WT(D)
• Next Hearing Date: 07-11-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 15-05-2024
• Other Referred Cases: CIT Vs. Manjunatha Cotton and Ginning factory, CIT Vs. Reliance Petroleum Products Ltd., ITA.No.1017/Bang/2023 A.Y.2017-18 VDB Infra and Realty Pvt Ltd Vs ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside; Business income; Bonafide belief
• Section: 250

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHIR PAVAN KUMAR GADALE, JUDICIAL MEMBER & SHRI GD PADMAHSHALI, ACCOUNTANT MEMBER ITA No. 128/PAN/2024 (A.Y: 2018-19) Income Tax Officer, “| NFAC Delhi. Sampatkumar Kalyanrao,Muchalambi, Opp:Jain Basti,ShettiGalli,Taluka Belagavi--591101. Karnataka. PAN/GIR No. : ALDPM3003B Appellant [.. | Respondent Shri.Sachin B Nichal.AR Shri.Ravindra Hattalli. Sr.DR 07.11.2024 13.11.2024 sneer OR ER Ser aos 8 PER PAVAN KUMAR GADALE, JM: The appeal is filed by the assesse against the order of the National Faceless Appeal Centre (NFAC) Delhi /CIT (A) passed U/sec 270A and u/sec 250 of the Act. The assessee has raised the grounds of appeal challenging the order of the CIT(A) sustaining the levy of penalty u/sec270A of the Act. ITA No. 128/PAN/2024 Sampat al kalyanrao muchalambi. Belagavi. 2. The brief facts of the case are that, the assesse is engaged in the business of distribution of newspapers and advertisement services. The assessee has filed the return of income for the A.Y 2018-19 on 21.09.2018 disclosing a total income of Rs.7,99,460/- Subsequently the case was selected for limited scrutiny and notice u/secl43(2) and u/sec142(1) of the Act are issued. In compliance, the assessee has filed the details and submissions in support of return of income filed and information called i.e profit& Loss account, commission statement, bank statement, ledger account of commission expenses, bills etc vide letter dated 28-01-2020. Whereas the A.O was not satisfied with the explanations and dealt on commission expenses percentage of earlier years and has restricted the claim of commission expenses to the extent of Rs.14,33,701/- and disallowed balance amount of Rs.5,47,777/- and the A.O also made disallowance u/sec40A(3) of the Act of Rs.10,302/- and assessed the total income of Rs.13,57,539/- and passed the order u/secl43(3) of the Act dated 17.03.2021. ITA No. 128/PAN/2024 Sampat ae kalyanrao muchalambi. Belagavi. 3. Subsequently, the A.O. has initiated penalty proceedings u/sec 270As of the Act for misreporting of income and the A.O has issued show cause notice. The assesse has complied with the information and explanations vide letter dated 28-12-2021. Whereas, the AO was not satisfied with the submissions | and levied a penalty of Rs.2,94,740/- and passed the order u/s 270A of the Act dated 18-01-2022. 4. Aggrieved by the penalty order, the assessee has filed an appeal before the CIT(A). In the appellate proceedings, the CIT(A) has considered the grounds of appeal, finding of the proceedings but has confirmed the penalty levied by the A.O and dismissed the assesse appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon’ble Tribunal. 5. At the time of hearing, the Ld.AR submitted that the CIT(A) has erred in confirming the action of the A.O in levying of penalty overlooking the facts and submissions irrespective of the fact that the penalty cannot be levied on the estimation disallowance Further the Ld.AR emphasized that the assessee in ITA No. 128/PAN/2024 Sampat kumar kalyanrao muchalambi. Belagavi. etfs response to notice under Section 270A of the Act dated 17-03-2021 has submitted the explanations along with the details on 28-12-2021 through E-Portal of the ITBA and the Assessing Officer has overlooked the submissions . The Ld.AR submitted that penalty provisions shall not be attracted, when part of commission expenses are disallowed on estimation basis by the A.O in the absence of supporting bills and vouchers and the A.O has not doubted the genuineness of claim of expenditure. The Ld.AR also mentioned that the assesse has claimed the expenditure under a bonafide belief. The Ld.AR substantiated the submissions with facts and judicial decisions and prayed for allowing the appeal. Per Contra, the Ld.Dr relied on the order of the CIT(A). 6. We heard the rival submissions and perused the material on record. The Ld.AR submitted that the CIT(A) has erred in sustaining the levy of penalty overlooking the submissions and the judicial decisions and the Assessing Officer has not doubted the genuineness of claim of expenditure but has disallowed the expenditure in the absence of production of bills and vouchers. We find that, the -- ITA No. 128/PAN/2024 Sampat kumar kalyanrao muchalambi. Belagavi. assessee is engaged in the business of distribution of newspapers and advertisement services and the assessee has debited commission expenses of Rs.19,81,479/- as the assessee could not submit the details/vouchers till the completion of the assessment proceedings and the Assessing Officer has made the addition of excess claim of commission expenses of Rs.5,47,777/- by restricting the claim @15.31% of the total sales based on the average ratio of two previous assessment years. Whereas the assesse has accepted the disallowance in the assessment proceedings and paid the taxes which is not disputed. The A.O has levied the penalty u/sec270A of the Act for underreporting of income in consequence of misreporting. Prima facie, it is clear that the assesse has complied with the notice and filed the submissions on 28-12-2021 before the penalty order is passed. 7. We have considered the facts that the assesee is dealing with the agents in of distribution of newspapers’ being a unorganized market and the assessee has filed the details and submissions in support of return of income filed and information ITA No. 128/PAN/2024 Sampat inte kalyanrao muchalambi. Belagavi. called for i.e profit& Loss account, commission statement, bank statement, ledger account of commission expenses, bills etc vide letter dated 28- 01-2020. Whereas the A.O was not satisfied with the explanations and dealt on commission expenses percentage of earlier years and has restricted the claim of commission expenses to the extent of Rs.14,33,701/- and disallowed balance amount of Rs.5,47,777/- and further the assessing officer has not doubted the genuineness of claim of commission expenditure. We are of the view that penalty cannot be automatic and every addition in the assessment proceedings cannot be gate way for levy of penalty and relay on the decision of Hon’ble Karnataka High Court in the case of the CIT Vs. Manjunatha Cotton and Ginning factory, [2013] 359 ITR 564 (Kar). Similarly the penalty cannot be levied in case of adhoc disallowance and estimation. Whereas the assessee has made a claim under the bonafide belief that it is allowable under the law and rely on the ratio of decision of Hon’ble Supreme Court in the case of CIT Vs. Reliance Petroleum Products Ltd.322 ITR 158(SC). We find that the CIT(A) has observed that the ITA No. 128/PAN/2024 Sampat kumar kalyanrao muchalambi. Belagavi. a T= case falls under clause(c)and (d) of section 270A(9) of the Act i.e claim of expenditure is not substantiated by any evidence and also recording of any false entry in the books of accounts. 8. Whereas the Ld.AR submitted that the the clause(c) is not applicable as the assessee has substantiated the claim with the evidence in the assessement proceedings i.e commission statement, bank statement, ledger account of commission expenses, bills etc vide letter dated 28-01-2020. The assesee has made a bonafide claim as in earlier years and accordingly entrées were made in the books of account and hence there cannot be any false entries in the books of account and the provisions of clause (d) of section 270A(9) of the Act are inapplicable. Further the Ld.AR relied on the decision of Honble Tribunal in ITA.No.1017/Bang/2023 A.Y.2017-18 VDB Infra and Realty Pvt Ltd Vs ITO order dated 18.01.2024 were it was held that, since the addition is only on estimated basis and the A.O could not prove that there was non incurring of the expenditure by the assessee and there was no positive material to suggest that the assessee has misrepresented or _ ITA No. 128/PAN/2024 Sampat kumar kalyanrao muchalambi. Belagavi. “if = suppressed any facts before the A.O or CIT(A) and has deleted the penalty. We considering the facts, circumstances, submissions and the ratio of the judicial decisions are of the opinion that the penalty cannot be sustained. Accordingly, we set aside the order of the CIT(A) and direct the assessing officer to delete the penalty. And we allow the grounds of appeal in favour of the assesse. 9. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 13.11.2024. Sd/- Sd/- (GD PADMAHSHALI) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Panaji Dated: 13/11/2024 ITA No. 128/PAN/2024 Sampat kumar kalyanrao muchalambi. Belagavi. -9- aera wafer 3fa/Copy of the Order forwarded to: arirereif_ / The Appellant Ueait / The Respondent. Wailer saat 3rd / The CIT(A) SMaHT HAFAN) / Concerned CIT fasmete wfafatt, sax ardhire sift, gaaare / DR, ITAT ams hse / Guard file. aS © De angurgan/ BY ORDER, wears wet //True Copy//() ( Asst. Registrar) ITAT, Panaji . Draft dictated on Draft placed before author raft proposed & placed before e second member GO raft discussed/approved by econd Member. pproved Draft comes to the r.PS/PS ept for pronouncement on ile sent to the Bench Clerk ate on which file goes to the R ate on which file goes to the ead Clerk. ate of dispatch of Order. ictation Pad is enclosed D Pin i , 1 pare rey NJ ol A (oe) Nie w) w) "