IN INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (Before Hon ble Shri Mahavir Singh, J.M. and Hon'ble Shri D.C. Agrawal, A.M.) I.T.A. No. 2233/AHD./2002 Assessment Year : 1992-1993 M/s. Prarthana Construction Pvt. Ltd., -vs.- Commissioner of Income Tax Ahmedabad (Appeals)-XI, Ahmedabad (Appellant) (Respondent) Appellant by : Shri Mehul K. Patel Respondent by : Shri K. Madhusudan, Sr. D.R. ORDER Per Shri D.C. Agarwal, Accountant Member : This is appeal filed by assessee for assessment year 1992-93 against levy of penalty of Rs.2,40,010/- under section 271(1)(c) of Act. 2. Ground raised by assessee is as under :- That Learned Commissioner of Income Tax(Appeals) erred in confirming penalty of Rs.2,40,010/- imposed by Assessing Officer u/s. 271(1)(c) and that same should be deleted . 3. facts of case are that during course of assessment proceedings, following additions and disallowances were made :- (i) Disallowance of salary wages expenses Rs.3,18,907/-; (ii) Disallowance of warranty expenses Rs.47,040/-; (iii) Disallowance of octroi expenses Rs.47,766/-; (iv) Disallowance of advertisement expenses Rs.2,22,400/-; (v) Disallowance of telephone expenses Rs.1,00,203/-. A.O. had initiated Penalty proceedings in respect of these additions. In response to show- cause notice issued before levy of penalty assessee furnished reply dated 16.06.2000, according to which penalty could not be levied on these additions. According to assessee, expenses are reimbursable and there is no finding that these expenses are not genuine. Further, certain disallowances were made because assessee was not able to produce vouchers and explanations against additions were not found satisfactory. Assessing Officer, however, 2 ITA No. 2233-AHD-2002 rejected explanations and proceeded to levy penalty on these additions. Learned Commissioner of Income Tax(Appeals) confirmed levy of penalty through summary order. 4. Before us, it was submitted by ld. A.R. that additions relating to salary and wages has been deleted by Learned Commissioner of Income Tax (Appeals) as under :- As regards salary and wages, I am in agreement with appellant s representative that in so far as his own establishment is concerned, salary and wages expenses cannot be claimed as reimbursement from customers. Accordingly, disallowance of Rs.3,18,907/- made by Assessing Officer on this account is deleted . warranty expenses of Rs.47,040/- was allowed by Tribunal in order in ITA Nos. 147 & 148/AHD/2000 pronounced on 07.07.2006 as under :- So far as warranty expenses are concerned, here also neither incurring of expenses nor genuineness of payment has been doubted, disallowance has been made on assumptions, assessee in its business interest, if carries any repairs and maintenance to project itself as good building, same has to be held as business expenditure, therefore, ground No. 1 is allowed . So far as octroi expenses is concerned, it was confirmed by Learned Commissioner of Income Tax (Appeals) but no appeal has been filed by assessee before Tribunal. Advertisement expenses of Rs.2,22,400/- has been allowed by Tribunal in order in ITA Nos. 147 & 148/AHD/2000 pronounced on 07.07.2006 as under :- Coming to remaining grounds of AY 1992-93, apropos Ground No. 1 about advertisement expenses, learned counsel contends that assessee is one of reputed builders having business operations not only at Ahmedabad but its surrounding and Mumbai also. On knowledge that assessee has undertaken particular projects various flat purchasers approach assessee which facilitated efficiency and proper booking of projects thus adding to business reputation of assessee. Though there is agreement in this respect with various NTCs, for their projects that is confined to particular project in question, however, assessee on broader area basis to support its construction activities advertised by way of hoarding and other media about its business potential and to inform customers not only about existence and continuance of construction activities but about projects which are in offing. Complete details of expenditure has been given, genuineness whereof has not been doubted, assessee as reputed business organization has right to advertise its 3 ITA No. 2233-AHD-2002 business activity, over and above agreement with NTC, expenditure was clearly for business purpose . addition regarding warranty expenses was deleted by Learned Commissioner of Income Tax (Appeals). This was set aside by Tribunal as under :- 5. We have heard rival submissions and perused material available on record. In facts and circumstances, we are of view that assessee needs to be given chance to produce those agreements and necessary confirmations from construction project organization that there was such understanding and material to that effect. In view thereof, this grounds in both years allowed for statistical purpose . Thus according to ld. A.R., only one addition survives which is octroi expenses. No material fact was found to be concealed by assessee in respect of this addition. Addition was confirmed for want of receipt even though genuineness of payment and import of goods into city was not doubted. 5. We have heard rival submission and perused material placed on record. As mentioned above, salary and wages of Rs.3,18,907/- added by AO was deleted by learned CIT(A) and department has not preferred any appeal. Advertisement expenses of Rs.2,22,400/- has been deleted by Tribunal. teka Centering expenses of Rs.1,00,023/- has been set aside by Tribunal. only expenditure disallowed by AO and confirmed by learned C1T(A) and no appeal has been filed by assessee before Tribunal is octroi expenses of Rs.47,766/- . Since out of five expenditure disallowed by Assessing Officer, four have been either deleted by CIT(A) or deleted by tribunal or set aside. Therefore, there is no case for levy of penalty for concealment in respect of these sums. So far as octroi expenses is concerned, learned CIT(A) has observed that sum of Rs.11,428/- was paid towards octroi for computers and its accessories and Rs.36,338/- was paid on account of non-production of octroi receipts of same computers while carrying them in car. No case was made out that claim for octroi expenses was false. In fact, dispute was only on nature of claim and not on genuineness thereof. On this addition also no penalty can be imposed in view of decision of Hon'ble Apex Court in case of CIT Vs. Reliance Petroproducts Ltd,, (2010) 322 1TR 158 (SC). According to Apex Court, if any information given in return is not found incorrect, then merely for making unsustainable claim, penalty under Section 271(1 )(c) cannot be levied. 4 ITA No. 2233-AHD-2002 So far as penalty in respect of other amount deleted is concerned, we get support from following decisions: 1. ACIT vs. VIP Industries (2009) 122 TTJ 289 (Mum.) / (2009) 21 DTR 153 (Mum.) Where addition was deleted by Tribunal in quantum appeal, very foundation for levy of penalty ceased to exist. 2.Additional Commissioner of Income-tax v. Badri Prasad Kashi Prasad [1993] 200 ITR 0206- [Allahabad High Court] Held,_ that levy of penalty was based on addition to income made by Income-tax Officer. addition was deleted by Tribunal. Hence, Tribunal was justified in cancelling penalty. 3. Prabhat Oil Traders v. Income-tax Officer (No. 3) [1996] 218 ITR (A.T.) 0039- [Income-tax Appellate Tribunal--Ahmedabad] Penalty--Concealment of income--Amount allegedly invested in purchase of commodity and profit on its sale outside books of account--Addition made to income on ground that amount represented unexplained investment and also suppressed profits on sale outside books of account--No evidence that explanation regarding purchase was false--Addition deleted in quantum proceedings--Penalty could not be levied--Income-tax Act, 1961, s. 271(1)(c). 4. Commissioner of Income-tax v. Mohd. Bux Sokat Ali [2004] 265 ITR 0326- [Rajasthan High Court] For assessment year 1987-88, assessing authority made assessment on firm on total income of Rs. 5,90,300 against returned income of Rs. 2,45,224. assessing authority also passed order under section 186(1) of Income-tax Act, 1961, refusing continuation of registration. Tribunal granted registration and deleted addition. Assessing Officer had imposed penalty but Commissioner (Appeals) cancelled it. order was upheld by Income-tax Appellate Tribunal on ground that very basis for levying penalty did not survive. On application to direct reference : _Held,_ that order of Income-tax Appellate Tribunal directing registration and deleting addition had become final. Tribunal was justified in cancelling penalty. No question of law arose from its order. 5. Commissioner of Income-tax v. Bengal Jute Mills Co. Ltd. [1988] 174 ITR 0402- [Calcutta High Court] 5 ITA No. 2233-AHD-2002 Where penalty was imposed solely on basis of addition of Rs. 4 lakhs to assessee's total income and addition was deleted by Tribunal: Held,_ that it was evident from material on record that penalty had been imposed solely on basis of addition of Rs. 4 lakhs to assessees income. If addition was deleted, charge of concealment of income could not be sustained. Imposition of penalty under section 271(l)(c) of Income-tax Act, 1961, was, therefore, not valid. 6. Commissioner of Income-tax v. Shishpal[2002] 255 ITR 0187- [Rajasthan High Court] assessee was apprehended by customs authorities and was found possessing precious stones of value of Rs. 64,503. Since assessee could not prove acquisition/source of investment in precious stones, Income-tax Officer brought to tax unexplained investment by resorting to section 69 of Income-tax Act, 1961, and directed issuance of penalty notice including notice under section 274 read with section 271(1)(c) of Act. He levied penalty of Rs. 32,256. Commissioner of Income-tax (Appeals) cancelled entire penalty on basis that since in quantum appeal addition itself was deleted, there was no case for penalty under section 271(1)(c). This was upheld by Tribunal. On reference : _Held,_ that cancellation of penalty was valid. In view of above, we hold that no penalty can be levied in this ease. 6. In result, appeal filed by assessee is allowed. Order was pronounced in Court on 07.01.2011 Sd/- Sd/- (Mahavir Singh) (D.C. Agrawal) Judicial Member Accountant Member DATED : 07/ 01 / 2011 Copy of order is forwarded to : 1) Assessee (2) Department. 3) CIT(A.) concerned, (4) CIT concerned, (5) D.R., ITAT, Ahmedabad. True Copy By Order Deputy Registrar, ITAT, Ahmedabad Laha/Sr.P.S. M/s Prarthana Const P Ltd v. Dycit SR-1