Tribunals
Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Thursday, 25 February 2016 15:03

Penalty u/s 271(1)(c) - Cannot be imposed merely on the basis of DVO's report without substantiating as to how there has been furnishing of inaccurate particulars of income and/or concealment of income by AO - Delhi Tribunal Featured

Written by
  • font size decrease font size increase font size
  • Print
  • Email
  • Be the first to comment!
Rate this item
(0 votes)

Penalty u/s 271(1)(c) on the basis of DVO's Report

Gist

1. When it comes to imposition of penalty for furnishing of inaccurate particulars and/or concealment, utmost caution has to be exercised

2. The Department has to substantiate as to how there has been furnishing of inaccurate particulars of income and/or concealment by the assessee

3. When the AO has himself not brought any cogent material on record, apart from the DVO’s report, penalty u/s 271(1)(c) cannot be justified

Facts

1. Assessment in this case was completed u/s 143(3) of the Act determining the total income at Rs. 18,59,45,860/- after making various additions of Rs.68,73,054/- and Rs.1,09,25,288/- on account of income from undisclosed sources

2. The case of the assessee company for valuation of factory building in respect of (i) Sponge Iron Division, Champa, (ii) Induction Furnace Division, Champa, (iii) Rolling Mill Division was referred to the District Valuation Officer (DVO)

3. During the year the assessee company had shown the amounts of additions as under:-

i) Sponge Iron Division, Champa Rs. 12,95,399/-

ii) Induction furnace Division, Champa Rs. 48,78,246/-

iii) Rolling Mill Division Rs. 74,34,201/-

4. Total difference between cost of construction as shown by the assessee and as assessed by the DVO, was worked out at Rs. 68,73,0543/-

5. The Assessing Officer was of the opinion that the assessee company had understated its cost of construction of SI Division, IF Division and RM Division to the extent of Rs.68,73,054/-

6. The Assessing Officer made the addition of Rs. 68,73,054/- on account of income from undisclosed sources

7. Further, the assessee company had shown the additions to building at Picture Tube Plant at Pithampur at Rs.1,40,40,463/-

8. The DVO estimated the cost at Rs.2,49,65,351/-

9. In this report, the DVO also held that the accounts of the assessee were not reliable

10. The Assessing Officer made a further addition of Rs.1,09,25,288/- on account of income from undisclosed sources

11. The appeal against the quantum was confirmed by the Ld. CIT (A)

12. In the penalty proceedings u/s 271(1)(c) of the Act, the assessee raised similar objections about the validity of the DVO’s report as in the quantum proceedings

13. However, the Assessing Officer was of the view that all the objections raised by the assessee were an afterthought and that the accounts of the assessee were not reliable and the DVO had done the valuation in accordance with the Board’s Instruction No. 1671 and the rates as contained in the CBDT’s instructions were applied

14. Thereafter, he proceeded to point out some more defects in the stand of the assessee and imposed a penalty of Rs.81,87,238/- u/s 271(1)(c) of the Act

15. In the first appellate proceedings, the assessee contested the imposition of penalty from the legal angle and relied on a plethora of case laws for the propositions that in absence of other independent/corroborative evidence, addition on account of unexplained investment in cost of construction cannot be made on the basis of DVO’s report and that the addition to the income of the assessee based on the report of the Valuer was insufficient for recording a finding of concealment of income/furnishing inaccurate particulars of income

16. The Ld. CIT (A) deleted the entire penalty

17. Department moved to the Tribunal against the waiver of penalty by CIT(A)

18. Honb. ITAT confirmed the order of CIT(A) and deleted the penalty u/s 271(1)(c) 

Adjudication

It is undisputed fact that the penalty has been imposed entirely on the basis of difference in value of the fixed assets as per the books of account of the assessee and the valuation arrived at by the DVO. It is also an undisputed fact that apart from the DVO’s report, the AO had no other independent evidence to counter the figures from the assessee’s books of account. It is also seen that while dealing with the assessee’s objections on the DVO’s report, the AO has relied only on the comments of the DVO in response to the assessee’s objections but has failed to give a final finding on the issue. Thus he has not dealt with the assessee’s objections properly. This might have served the Revenue’s purpose in the quantum proceedings but when it comes to imposition of penalty for furnishing of inaccurate particulars and/or concealment, utmost caution has to be exercised. The Department has not been able to substantiate as to how there has been furnishing of inaccurate particulars of income and/or concealment by the assessee when the AO has himself not brought any cogent material on record, apart from the DVO’s report, to justify the imposition of penalty.....

As such, having regard to all the facts of the case as discussed above, we are of the view that considered from any angle, the penalty imposed by the Assessing Officer under section 271(1)(c) was not sustainable and the learned CIT(A) was fully justified in cancelling the same. The impugned order of the learned CIT (A) is, therefore, upheld dismissing this appeal filed by the revenue.  

Cases referred to

1. ACIT v. Dhariya Construction Co. 197 TAXMAN 202 (SC)

2. Pr. CIT v. J. Upendra Construction (P.) Ltd. 59 taxmann.com 144 (Gujarat)

3. CIT v. Bajrang Lai Bansal 335 ITR 572 (Delhi)

4. CIT v. Lahsa Construction (P.) Ltd 357 ITR 671 (Delhi)

5. CIT v. Puneet Sabharwal 338 ITR 485 (Delhi)

6. CIT vs. Smt Suraj Devi 328 ITR 604 (Del)

7. CIT vs. Naveen Gera 328 ITR 516 (Del)

8. K.P. Varghese v. ITO (1981) 7 TAXMAN 13 (SC)

9. DCIT v. JMD Advisors (P.) Ltd. [2010] 124 ITD 223 (Delhi Trib.)

10. T.P.K. Ramalingam v. CIT [1995] 211 ITR 520 (MAD.)

Additional Info

Read 4464 times Last modified on Wednesday, 04 May 2016 12:24
Taxpundit

Founder & CEO with over 20 years of total professional experience spread across Internal Audit, IT Audit, Enterprise Risk Management, Financial statement audit & Business Finance Management.

https://www.linkedin.com/in/taxpundit | This email address is being protected from spambots. You need JavaScript enabled to view it.

Leave a comment

Thank you for reading! We welcome and appreciate your comments, but at the same time, make sure you are adding something valuable to this article. If you have any serious queries, suggestions or anything related to this article, feel free to share them, we really appreciate that.

If you want to give us any feedback or report any errors, you can email your concerns on taxpundit@taxpundit.org and we'll revert back soon.

Most Popular Case Summary

  • Default
  • Title
  • Date
  • Random
load more hold SHIFT key to load all load all

Recommended Articles

 

Have you done Analysis of any Case? Tell Us About It.

SITE INFORMATION

All content herein is the copyright of Taxpundit. No images, text, or any other content may be, reproduced or redistributed without the express written consent of Taxpundit.

All Rights Reserved. All Content Copyright.

Newsletter

Subscribe to our newsletter and stay updated on the latest developments and special offers!

Vivad Se Vishwas Scheme announced in Union Budget, 2020. Download Now
Toggle Bar