INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “F”, MUMBAI
ITA No.7030/M/2018
Assessment Year: 2013-14

Mumbai bench of the Income Tax Appellate Tribunal (ITAT) in above Income Tax appeal has held that a wrong claim for TDS cannot be a ground to invoke penalty proceedings against the assessee under section 271(1)(c) of the Income Tax Act.

In this case, the revenue initiated penalty proceedings against the assessee by holding that there was a wrong claim of TDS in the return of income to the tune of Rs.3,48,120/- without offering the corresponding income to tax. In fact, this TDS did not belong to the assessee but appeared in the form No.26AS and accordingly claimed by the assessee.  Assessee claimed that in any case even if the TDS is claimed in the return of income, the credit is only allowed after verification of the TDS as appearing in form 26AS. We find that the only addition made in the assessment order was in respect of disallowance under section 14A of the Act.

On the second appeal before the Tribunal, it was  noted that during the assessment proceedings, the AO rejected the claim of the assessee for the TDS of Rs.3,48,120/- and there was no addition made to the income of the assessee of any kind whatsoever qua this TDS claim.

ITAT further held as under:
“In our view, the penalty under section 271(1)(c) of the Act can only be initiated and levied if there is a concealment of income or furnishing of inaccurate particulars of income on the part of the assessee. However, in this particular case, it was a wrong claim of TDS and thus the provisions of section 271(1)(c) of the Act do not apply to the present case. Even for the purpose of levying of penalty, the mechanism provided in the section itself provides for the calculation of penalty which is 100% to 300% of the tax sought to be evaded. In other words, there has to be tax evasion for the purpose of imposition of penalty otherwise the provisions of section 271(1)(c) of the Act do not hold good. Even on the legal issue, the assessee has got a very strong case as the penalty has been initiated on both the charges. The penalty notices under section 271(1)(c) dated 09.03.2016 and 22.08.2016 were issued in a mechanical manner without mentioning or stating the specific charge on which the penalty was proposed to be levied without any application of mind. Similarly, the order of imposing penalty was passed by the AO on both the charges as stated in para 9 of the penalty order,” the Tribunal said.