Penalty under section 271(1)(c) cannot be levied for mere claim of wrong TDS: ITAT

The assessee started his business initially as proprietor of Jolly Containers, at that time there were certain investment in fixed deposits and also security deposit with Electricity Board. Interest income is earned on that. At the time of making those deposits, the Permanent Accountant Number of the assessee was given.

Subsequently, from 1st April, 2015, the sole of proprietorship business of assessee was converted into partnership firm and consequently, the fixed deposit and other deposits were appearing in the books of partnership. The interest income received on these deposits was already offered as income in the hands of partnership for Assessment Year 2016-17. However, as the Permanent Accountant Number of the assessee was available with the bank and Electricity Board, they deducted tax at source by using the Permanent Accountant Number of the assessee instead of firm. Thus, TDS on this interest appeared in form no. 26AS of the assessee. Being the small amount, inadvertently, the credit of TDS was taken by the individual assessee where as the interest income was offered in the hands of partnership firm.

The partnership firm also did not claim credit for this TDS. The assessee produced only account and return of income of the partnership firm. However, the learned Assessing Officer rejected the contention and levied penalty of Rs.1,10,000/- stating that the assessee has filed ‘inaccurate particulars of income’.

The assessee preferred the appeal before the learned CIT(A), who confirmed the penalty on the merits.

ITAT Order:

11. We have carefully considered the rival contentions and perused the order of the lower authorities. In the present case, the levy of penalty under Section 271(1)(c) of the Act is agitated by the assessee stating that notice issued dated 11th June, 2019, under section 274 read with section 271(1)(c) of the Act none of the twin charges were struck off by the learned Assessing Officer. Further, in the assessment order also, the learned Assessing Officer was not sure whether the assessee has furnished inaccurate particulars or has concealed the income. In such circumstances, the penalty levied by the learned Assessing Officer suffers from severe defects. The issue is squarely covered in favour of the assessee by the decision of Hon’ble Supreme Court in case of SSA’S Emerald Meadows (supra). The learned CIT(A) is not correct in upholding the penalty on this ground. Further, on the merits of the case, the income has already been offered in the hands of partnership firm which has already been taxed when order under section 143(3) of the Act was passed in case of partnership firm on 27th November, 2018. The learned Assessing Officer despite showing the above facts, has taxed the income of interest income in the hands of the assessee. In fact, the income does not belong to the assessee but to the partnership firm. Therefore, this addition could not have been made in the hands of the assessee. However, we find in the penalty proceedings also assessee submitted the complete information. The explanation given by the assessee clearly shows that there is neither concealment of income nor furnishing of inaccurate particulars of income. The only fault of the assessee was of claiming Tax deducted at source wrongly. The learned Assessing Officer should have refused the credit of such TDS but should not have taxed interest income in the hands of the assessee. Therefore, even on the merits the penalty under section 271(1)(c) of the Act cannot be levied.

12. In the result, the appeal filed by the assessee is allowed reversing the findings of the lower authorities. The learned Assessing Officer is directed to delete the penalty of Rs.1,10,000/- levied & confirmed under section 271(1)(c) of the Act.