The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) deleted the penalty disallowance after the assessing officer (AO) incorrectly applied Section 37 of the Income Tax Act, 1961 to an amount that had already been disallowed in the original income tax return.
Ishan Equipments Pvt. Ltd., the assessee is engaged in the engineering and fabrication business. The assessee filed its income tax return for AY 2018-19 declaring income of Rs. 1,51,43,170. The assessment was selected for complete scrutiny under the E-Assessment Scheme, 2019.
The assessing officer scrutinized two issues. One was for the verification of the genuineness of expenses and another was for verification of duty drawback received.
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The assessing officer scrutinized the assessment and made an addition of Rs. 4,81,985 under section 37 of the Income Tax Act, 1961, by disallowing the penalty expenditure and Rs. 24,50,304 under section 36(1)(vii) of the Income Tax Act by disallowing Bad Debts.
Aggrieved y by the decision, the assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) partially allowed the appeal.
Dissatisfied with the CIT(A)’s order, the assessee challenged that order before the Ahmedabad bench of ITAT arguing that this penalty was already disallowed and added back to the original income computation under section 43B of the Income Tax Act, and the AO’s action amounted to a double disallowance.
The revenue counsel supported the AO’s view, relying on the assessment order and arguing that the disallowances were justified as per the law.
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The two-member bench comprising T.R. Senthil Kumar (Judicial Member) and Makarand V. Mahadeokar (Accountant Member) observed that the assessing officer erred in disallowing the penalty expenditure.
The Tribunal observed that the total disallowance of Rs. 21,62,259, as shown in the assessee’s income tax return, already included the penalty expenditure. The AO’s disallowance under section 37 of the Income Tax Act was indeed a duplication caused by a clerical error. Thus, the tribunal deleted the addition. The appeal of the assessee was allowed.
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