In a recent ruling, the Income Tax Appellate Tribunal, Mumbai, if the assessee does not make disallowance u/s 43-Bin bonafide belief, then the Revenue cannot impose penalty under section 271(1)(c) of the Income Tax Act, 1961.
In the instant case, the Assessing Officer levied penalty under section 271(1)(c)against the assessee on ground that a sum of Rs.35,37,287/- was shown as outstanding Service tax liability. It was noticed that the assessee did not make any disallowance u/s 43B of the Income Tax Act. The assessee maintained that the service tax liability arises on “receipt basis”, i.e., it shall become payable only upon receipt of bill amount from the concerned debtor. The assessee submitted that he was under bonafide belief that the disallowance u/s 43B of the Income Tax Act may not be required to be made, if the concerned bill amount was not received. Rejecting the submissions, the officer passed penalty orders.
On appeal, the Commissioner of Income Tax (Appeals) confimed the above order. Hence, the assessee preferred a second appeal before the ITAT.
While quashing the order impugned, the Tribunal observed that “We are of the view that the explanation of the assessee with regard to Service tax liability is also bonafide one. Thus, we notice that the explanations furnished by the assessee have not been found to be false. Even though the AO has taken the view that the assessee has corrected these mistakes upon receipt of notice only, yet we are of the view that the Explanation 1 to sec. 271(1)(c) of the Act would come to the help of the assessee, since the assessee has furnished explanations which were not found to be false and further the assessee has also furnished all the relevant details to the AO. The assessee has otherwise recorded all the details in his books of account without concealing anything. Accordingly, we are of the view that there is no justification on the part of the Ld CIT(A) in confirming the penalty levied by the AO.”
Read the full text of the order below.
