Source: http://aiftponline.org/journal/2015/november/tribunals/
Timestamp: 2019-04-23 14:55:52+00:00

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Subsidy received by assessee-company on export oriented unit from Director of Industries, Punjab under Industrial Policy 1996 of Punjab Government for installation of plant and machinery would be capital receipt.
If activities of a trust are found to be charitable and property is held wholly and exclusively under trust for charitable and religious purposes, then such a trust cannot be denied registration merely because its activities are extended outside India.
Assessee-society was formed with object of establishing schools, colleges, hospitals etc. for benefit of Christian Community. The assessee filed an application seeking registration under section 12AA of the Act. The Commissioner rejected the application on the basis that the society was formed for the benefit of a particular community and there was violation of section 13(1)(b) of the Act. On appeal allowing the claim of assessee the Tribunal held that; Commissioner could not reject its application for registration under section 12AA on ground that there was a violation of provisions of section of section 13(1)(b). Provisions of s. 13 can be invoked by A.O. while framing assessment and not by Commissioner while considering application for registration u/s. 12AA.
When the object of assessee is covered by charitable purposes, registration cannot be refused on ground that assessee is not carrying out any charitable activities. Whether the assessee is not carrying out any charitable activities remains to be seen at time of assessment proceedings. As regards registration under section 80G the matter is remanded to Commissioner to decide it according to law.
(i) The second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax. It has for long been the legal position that if the payee has paid tax on his income, no recovery of any tax can be made from the person who had failed to deduct the income tax at source from such amount.
S.41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Cash credits – Old unclaimed liabilities which are not written back by the assessee can neither be assessed as “cash credits” u/s. 68 nor assessed u/s.41(1) as “remission or cessation of liability”.
(i) In Shri Vardhaman Overseas Ltd. 343 ITR 408 (Del.) it has clearly laid down that neither section 41(1) nor section 68 of the Act can be applied. On the applicability of section 68, we are of the view that those provisions will not apply as the balances shown in the creditors account do not arise out of any transaction during the previous year relevant to AY 2009-10. The provisions of sec. 68 are clear in-as-much as they refer to “sum found credited in the books of account of an assessee maintained for any previous year”. Since the credit entries in question do not relate to previous year relevant to AY 2009-10, the same cannot be brought to tax u/s. 68 of the Act. The proper course in such cases for the Revenue would be to find out the year in which the credits in question were credited in the books of account and thereafter make an enquiry in that year and make an addition in that year, if other conditions for applicability of section 68 are satisfied.
(i) The derivative transaction cannot fall under section 73. Explanation to section 73 creates a deeming fiction by which among the assessee, who is a company, as indicated in the said Explanation dealing with the transaction of share and suffer loss, such loss should be treated to be speculative transaction within the meaning of section 73 of the Act, notwithstanding the fact that the definition of speculative transaction mentioned in section 43(5) of the Act, the transaction is not of that nature as there has been actual delivery of the scrips of share. As per the definition of section 43(5), trading of shares which is done by taking delivery does not come under the purview of the said section. Similarly, as per clause (d) of section 43(5), derivative transaction in shares is also not speculation transaction as defined in the said section. Therefore, both profit/loss from all the share delivery transactions and derivative transactions are having the same meaning, so far as section 43(5) of the Act is concerned. Again, in view of the fact that both delivery transactions and derivative transactions are non-speculative as far as section 43(5) is concerned, it follows that both will have the same treatment as far as application of Explanation to section 73 is concerned. Therefore, aggregation of the share trading profit and loss from derivative transactions should be done before the Explanation to section 73 is applied. The above view has been taken by Special Bench of this Tribunal, Mumbai Bench, in the case of CIT v. Concord Commercial Pvt. Ltd. (2005) 95 ITD 117 (Mum)(SB).
(ii) From the above, it is concluded that both trading of shares and derivative transactions are not coming under the purview of Section 43(5) of the Act which provides definition of “speculative transaction” exclusively for purposes of sections 28 to 41 of the Act. Again, the fact that both delivery based transaction in shares and derivative transactions are non-speculative as far as section 43(5) is concerned goes to confirm that both will have same treatment as regards application of the Explanation to Section 73 is concerned, which creates a deeming fiction. Now, before application of the said Explanation, aggregation of the business profit/loss is to be worked out irrespective of the fact, whether it is from share delivery transaction or derivative transaction.
(i) It is not disputed by the Revenue that the sum of Rs. 1.00 crore has been invested by the assessee towards acquiring new property. Of course, the legal title in the said property has not passed or transferred to the assessee within the specified period and it is also quite apparent that the new property was still under construction. So however, the allotment letter by the builder mentions the flat number and gives specific details of the property. The word ‘purchase’ used in Section 54 of the Act should be interpreted pragmatically. The intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to sub-serve the object and more particularly when one was concerned with exemption from payment of tax.
The assessee sold a residential flat in October, 2005 for certain amount and claimed deduction under section 54 in respect of cost of new flat.
The Assessing Officer noticed that the assessee had booked a flat in a project in December, 2002 in the joint name of assessee and her relative and she obtained possession of the new flat in December, 2004.
The Assessing Officer did not accept the assessee’s contention that the date of possession of new house should be taken as the date of purchase and rejected claim for deduction under section 54. On appeal, the Commissioner (Appeals) confirmed the decision of the Assessing Officer.
(i) The main issue is whether long term capital loss on sale of equity shares can be set off against long term capital gain arising on sale of land or not, as the income from long term capital gain on sale of such shares are exempt u/s. 10(38). The nature of income here in this case is from sale of Long term capital asset, which are equity shares in a company and unit of an equity oriented fund which is chargeable to STT. First of all, long term capital gain has been defined under section 2(39A), as capital gains arising from transfer of a long term capital asset. Section 2(14) defines “Capital asset” and various exceptions and exclusions have been provided which are not treated as capital asset. Section 45 is the charging section for any profits or gain arising from a transfer of a capital asset in the previous year i.e. taxability of capital gains. Section 47 enlists various exceptions and transactions which are not treated as transfer for the purpose of capital gain u/s. 45. The mode of computation to arrive at capital gain or loss has been enumerated from sections 48 to 55. Further sub section (3) of section 70 and section 71 provides for set off of loss in respect of capital gain.
(ii) The whole genre of income under the head capital gain on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular “provision” of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases where only one particular stream of income falling within a source is falling within exempt provisions.
(iii) Section 10(38) provides exemption of income only from transfer of long term equity shares and equity oriented fund and not only that, there are certain conditions stipulated for exempting such income i.e., payment of security transaction tax and whether the transaction on sale of such equity share or unit is entered into on or after the date on which chapter VII of Finance (No.2) Act, 2004 comes into force. If such conditions are not fulfilled then exemption is not given. Thus, the income contemplated in section 10(38) is only a part of the source of capital gain on shares and only a limited portion of source is treated as exempt and not the entire capital gain (on sale of shares). If an equity share is sold within the period of twelve months then it is chargeable to tax and only if it falls within the definition of Long term capital asset and, further fulfils the conditions mentioned in sub-section (38) of section 10 then only such portion of income is treated as exempt. There are further instances like debt oriented securities and equity shares where STT is not paid, then gain or profit from such shares are taxable.
(iv) Section 10 provides that certain income are not to be included while computing the total income of the assessee and in such a case the profit or loss resulting from such a source of income do not enter into computation at all. However, a distinction has been drawn where the entire source of income is exempt or only a part of source is exempt. Here it needs to be seen whether section 10(38) is source of income which does not enter into computation at all or is a part of the source, the income in respect of which is excluded in the computation of total income. For instance, if the assessee has income from short term capital gain on sale of shares; long term capital gain on debt funds; and long term capital gain from sale of equity shares, then while computing the taxable income, the whole of income would be computed in the total income and only the portion of long term capital gain on sale of equity shares would be removed from the taxable income as the same is exempt u/s. 10(38). This precise issue had come up for consideration before the Hon’ble Calcutta High Court in Royal Calcutta Turf Club v. CIT (1983) 144 ITR 709 (Cal).
(v) Though in CIT vs. Hariprasad & Company Pvt. Ltd. (1975) 99 ITR 118 (SC), the Supreme Court opined that if loss was from the source or head of income not liable to tax or congenitally exempt from income tax, neither the assessee was required to show the same in the return nor was the Assessing Officer under any obligation to compute or assess it much less for the purpose of carry forward, the ratio and the principle laid down by the Apex Court would not apply here in this case, because the concept of income includes loss will apply only when entire source is exempt or is not liable to tax and not in the case where only one of the income falling within such source is treated as exempt. The Hon’ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon’ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon’ble Supreme Court and held that the same will not apply in such cases.
S.115JB : Book Profits – Transfer of development rights to subsidiary – (i) Even if an amount is credited to the P&L Account, the assessee can seek exclusion of that amount for purposes of “book profits” if a note to that effect is inserted in the Accounts. (ii) The exemption conferred by S. 115JB to sums exempt u/s. 10 should be extended to all sums which are not chargeable to tax.
(i)	The decision rendered by the Special Bench of Tribunal in Rain Commodities Ltd. (40 SOT 265; 131 TTJ 514) is not applicable because in that case the capital gains had been included in the profit and loss account and it was accepted that the accounts have been prepared in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act. In the present case, it is clearly stated in the Notes forming part of accounts that the said profit is not includible for computing book profit u/s. 115JB of the Act, even though it is credited to Profit and Loss account. The profit and loss account prepared in accordance with the provisions of Part II to Schedule VI of the Companies Act should be read along with the ‘Notes forming part of accounts’. Hence the net profit shown in the Profit and loss account shall be first adjusted to take care of the qualifications given in the Notes.
(ii) As regards the contention that since the profit arising on transfer of a capital asset by a company to its wholly owned subsidiary company is not treated as income” u/s. 2(24) of the Act and since it does not enter into computation provision at all under the normal provisions of the Act, the same should not be considered for the purpose of computing book profit u/s. 115JB of the Act, it is pertinent to note that the provisions of section 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term “income” as defined in section 2(24) of the Act, but they are not included in total income in view of the provisions of section 10 of the Act. Since they are considered as “incomes not included in total income” for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s .115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation 1 to section 115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of “income”, are excluded for the purpose of computing “Book Profit”, since the said receipts are exempted u/s. 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of “total income” and “book profit”, in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of “income” at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in “book profit” u/s. 115JB of the Act.
S.143(3) : Assessment – Bogus sales and purchases – Natural justice – Reliance on statement of supplier who confesses to providing accommodation entries without giving assessee right of cross-examination violates principles of natural justice and the addition has to be deleted in toto – Sales made was not questioned – Addition was deleted.
(i) The assessment was reopened on the basis of the statement of Shri Hiten L. Rawal, the proprietor of M/s. Zalak Impex. In this statement recorded u/s. 131 of the Act, Shri Rawal confessed to have provided accommodation entries in the form of sales and purchases, to various parties. The assessee was stated to have obtained bills for non-existing parties, amounting to Rs. 4,09,12,718, during the year under consideration. It remains undisputed that the assessee was never provided any opportunity to cross examine Shri Hiten L. Rawal, though he specifically asked for such cross examination. On the other hand, the burden was sought to be shifted on the assessee by the AO, by asking him to produce Shri Rawal, even though it was the AO who had relied on the statement of Shri Rawal, without either confronting this statement to the assessee, or providing opportunity to the assessee to cross-examine Shri Rawal. Therefore, the reassessment order is as a result of violation of the natural principle of audialterampartem. A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party. Hence, on this score alone, the reassessment order is unsustainable in the eye of law and we hereby cancel the same. As a consequence, the order of the ld. CIT(A) is also cancelled in toto.
Closing stock found during survey was less than closing stock shown in trading account. This, according to Assessing Officer, proved shortage of stock and unaccounted sales. On facts addition made by Assessing Officer was totally uncalled for.
S.147 : Reassessment – Within four years – Tangible material – In the absence of “fresh tangible material” reassessment is not valid.
(ii) Recording of the ‘Reasons’ by the AO: ‘Reasons’ recorded should not be based upon the change of opinion of the Assessing Officer. ‘Reasons’ should be such that any person of ordinary prudence should be in a position to make a belief about escapement of income on the basis of facts narrated and material referred to, in the ‘Reasons’ recorded. The ‘Reasons’ should show that, there is rational nexus and cause & effect relationship between the material sought be relied upon in the Reasons and belief sought to be formed by the AO about escapement of income.
(iii) In case reopening is sought to be done by the AO after expiry of four years from the end of the relevant assessment year and the original assessment was framed u/s. 143(3) then reasons can be recorded only if there was failure on the part of the assessee in disclosure of material of facts, as has been envisaged in first proviso to section 147.
(iv) Before issuing notice u/s. 148, the AO has to obtain, on the reasons recorded by him, sanction for reopening of the case, from the competent authority as envisaged u/s. 151 viz. Additional Commissioner or the Commissioner of Income Tax, as the case may be. Before granting its sanction, the sanctioning authority is required to record its satisfaction based upon its independent application of mind, making out a case that as per the facts narrated and material referred to in the ‘Reasons’ recorded by the AO, a belief can be formed about escapement of income and case sought to be reopened is a fit case for reopening u/s. 147.
(v) After obtaining the sanction, the AO is required to issue and serve notice u/s. 148 upon the assessee, within the time limit as prescribed u/s. 149, to enable him to assume jurisdiction to reopen the assessment.
(vi) The assessee is required to file a return of income, in response to notice u/s 148 and may request for the copy of reasons.
(vii) The AO is bound, as per law, to provide a certified and verbatim copy of reasons to the assessee.
(viii) The assessee may file its objections before the AO, to the Reasons recorded, if any.
(ix) In pursuance to judgment of Hon’ble Supreme Court in the case of GKN Driveshafts 259 ITR 19 (SC), the AO is obliged to dispose of these objections and intimate the same to the assessee, before proceeding further with the reassessment proceedings.
(x) Thereafter, the AO is obliged under the law to issue and serve notice u/s.143(2) to enable him to make assessment of the return filed by the assessee in response to notice issued under section 148.
(xi) Framing of the re-assessment order by the AO u/s. 147/143(3) after providing adequate opportunity of hearing to the assessee and considering replies and evidences of the assessee, and all other applicable provisions of the Act.
(b) Under these facts and circumstances, let us now examine settled position of law on this issue. It has been held in various judgments coming from various courts that availability of fresh tangible material in the possession of AO at the time of recording of impugned reasons is a sine qua none, before the AO can record reasons for reopening of the case, as per the judgment of Hon’ble Supreme Court in the case of CIT v. Kelvinator India Ltd. 320 ITR 561 (SC). The term ‘tangible material’ has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment.
(i) There is no specific provision in the Act requiring the assessment made under section 153A to be after issue of notice under section 143(2) of the Act. Learned counsel for the assessee places heavy reliance on the judgment of the Hon’ble Supreme Court in ACIT v. Hotel Blue Moon v. DCIT(2010) 321 ITR 362 (SC) wherein it was held that where an assessment has to be completed under section 143(3) read with section 158BC, notice under section 143(2) must be issued and omission to do so cannot be a procedural irregularity and the same is not curable. It is to be noted that the above said judgment was in the context of section 158BC. Clause (b) of section 158BC expressly provides that “the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143, section 144 and section 145 shall, so far as may be, apply. This is not the position under section 153A. The law laid down in Hotel Blue Moon, is thus not applicable to the facts of the present case.
S.194C : Deduction at Ssource – Contractors – No obligation to deduct TDS at stage of making provision for expenditure if payee cannot be identified. No obligation to deduct TDS if services (roaming charges) are rendered without human intervention and are not “technical services”.
(i) The assessee, a telecom operator, made provision for site restoration expenses, however, TDS was not made. The provision was made for dismantling the towers and restoration of site to its original position after termination of the lease period. The lease period is normally 20 years and above. The assessee by placing reliance on the Accounting Standard – 29 claims that a provision would be made in respect of an obligation. In other words, the assessee had an obligation to incur the expenditure after termination of the lease period. The Revenue contended that due to misconception and ignorance of law and with an intention to circumvent the statutory provisions, the assessee made the provision. The fact remains that the payment was not made to anyone and it is not credited to the account of any party or individual. The account does not disclose the person to whom the amount is to be paid. The contractor who is supposed to be engaged for dismantling the tower and restore the site in its original position is not identified. As contended by the assessee, the assessee by itself engaging its own labourers may dismantle the towers and restore the site to its original position. In such a case, the question of deducting tax at source does not arise. The assessee has to pay only the salary to the respective employees. Suppose the work is entrusted to a contractor, then definitely the assessee has to deduct tax. In this case, the contractor would be identified after the expiry of lease period. Therefore, even if the assessee deducts tax, it cannot be paid to the credit of any individual. The assessee has to issue Form 16A prescribed under Rule 31(1)(b) of the Income-tax Rules, 1962 for the tax deducted at source. The assessee has to necessarily give the details of name and address of deductee, the PAN of deductee and amount paid or credited. In this case, the assessee could not identify the name and address of deductee and and his PAN. The assessee also may not be in a position to quantify the amount required for incurring the expenditure for dismantling and restoration of site to its original position. In those circumstances, the provision which requires deduction of tax at source fails. Hence, the assessee cannot be faulted for non-deduction of tax at source while making a provision.
(ii) As regards the year-end provisions, the assessee made arrangement with other service provides for providing value added services. There may be justification with regard to the expenditure for availing the services of identification and verification for the last month of financial year, since the assessee may not have the exact details on verification done by the concerned persons and the amount required to be paid. However, in respect of the downloads and value added service, etc. the entire details may be available in the system. Therefore, wherever the particulars and details available and amount payable could be quantified, the assessee has to necessarily deduct tax. In respect of value added services like daily horoscopes, astrology, customer acquisition forms are all from specific service providers and these value added services are monitored by system. Therefore, even on the last day of financial year, the assessee could very well ascertain the actual quantification of the amount payable and the identity of the payee to whom the amount has to be paid. To that extent, the contention of the assessee that the payee may not be identified may not be justified. The Assessing Officer has to examine whether the payment to the party/payee is identifiable on the last day of financial year and whether the quantum payable by the assessee is also quantified on the last date of financial year. In case, the Assessing Officer finds that the payee could not be identified on the last day of financial year and the amount payable also could not be ascertained, the assessee may not require to deduct tax in respect of that provision. However, in case the payee is identified and quantum is also ascertainable on the last day of the financial year, the assessee has to necessarily deduct tax at source.
S. 194J : Deduction of tax at source – Fees for professional or technical services – Data Link Charges –Transmission of data via gadgets without any human intervention will not amount to technical services – Not liable to deduct tax at source.
(i) Section 200A was amended by the Finance Act, 2015 with effect from 1st June, 2015 to provide that in the course of processing of a TDS statement and issuance of intimation under section 200A in respect thereof, an adjustment could also be made in respect of the fee computed in accordance with the provisions of section 234E. As the law stood prior to 1st June 2015, there was no enabling provision therein for raising a demand in respect of levy of fees under section 234E. While examining the correctness of the intimation under section 200A, we have to be guided by the limited mandate of Section 200A, which, at the relevant point of time, permitted computation of amount recoverable from, or payable to, the tax deductor after making the adjustments (a) on account of “arithmetical errors” and “incorrect claims apparent from any information in he statement” and (b) interest computed on the basis of sums deductible as computed in the statement. No other adjustments in the amount refundable to, or recoverable from, the tax deductor, were permissible in accordance with the law as it existed at that point of time. Accordingly, the adjustment in respect of levy of fees under section 234E was beyond the scope of permissible adjustments contemplated under section 200A.
(i) The findings of the CIT(Appeals) clearly show that instead of deciding the appeal on merits and in compliance with the order of the Tribunal dated 23.11.2011, he preferred to follow the view and order passed by his predecessor. The CIT(A) has even gone to the extent of noting in the impugned order that the view taken by his predecessor was correct. Thus it is clear that the CIT(A) has shown disobedience to the order of the Tribunal by which the earlier order of the predecessor of the CIT(A) was set aside by the Tribunal in toto. The earlier order of the predecessor of the CIT(A) would not stand in the eyes of law.
(ii) It is a clear case of showing disrespect to the order of the Tribunal. Therefore, contempt proceedings could have been initiated against the CIT(A) for blatantly disobeying the order of the Tribunal. The Madhya Pradesh High Court in Agrawal Warehousing & Leasing Ltd. vs. CIT 257 ITR 235 held that the CIT(A) cannot refuse to follow the order of the Appellate Tribunal. The CIT(A) is a quasi-judicial authority and is subordinate in judicial hierarchy to the Tribunal. The orders passed by the Tribunal are binding on all the revenue authorities functioning under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities (Union of India v. Kamlakshi Finance Corporation AIR 1992 SC 711 referred).
(i) The direction to the Assessing Officer by the CIT(Appeals) to disallow payments made by the assessee under section 40(a)(ia) of the Act was a question of taxability of income from a new source of income which has not been considered by the Assessing Officer, hence it was exceeding of jurisdiction by the CIT(Appeals) in a set aside matter by the ITAT in the present case. Though the CIT(Appeals) has co-terminus powers as of the Assessing Officer and is empowered to do what an Assessing Officer can do for the assessment, the directed disallowance was new source of income, which was not the subject matter of setting aside order by the ITAT, in compliance of which assessment under section 254 read with section 143(3) was framed.
The assessee claimed deduction under section 80IA of the Income-tax Act.
(i) In the assessment order passed u/s. 143(3), the AO initiated penalty for concealing the particulars of income. However, at the time of passing penalty order the AO levied penalty for filing of inaccurate particulars of income under the virtue of Explanation 1 to Section 271(1)(c) of the Act. From a reading of Explanation 1 to Section 271(1)(c) of the Act, it is apparent that, if the AO in the course of assessment proceedings is satisfied that, any person has concealed the particulars of income or furnished inaccurate particulars of such income, then he may levy penalty on the assessee. Thus, there are two different charges i.e. concealment of particulars of income or furnishing of inaccurate particulars of income. The penalty can be imposed only for a specific charge. Furnishing inaccurate particulars of income means, when the assessee has not disclosed the particulars correctly or the particulars disclosed by the assessee are found to be incorrect whereas, concealment of particulars of income means, when the assessee has concealed the income and has not shown the income in its return or in its books of accounts. Explanation 1 is a deeming provision and is applicable when an amount is added or disallowed in computation of total income which is deemed to represent the income in respect of which particulars have been concealed. Explanation 1 cannot be applied in a case where the assessee furnishes inaccurate particulars of income.
(ii) In the present case, the AO initiated penalty proceeding u/s. 271(1)(c) on the basis that the assessee has concealed the particulars of income and the penalty ultimately levied on the assessee has been for furnishing inaccurate particulars by observing that the case of the assessee is covered by the Explanation 1 to Section 271(1)(c).
(i) Undisclosed income means “any income represented by any documents” found during the course of search, which are not recorded in the books of accounts of the assessee. In the instant case, the additions of cash expenses and payments of Rs. 71,90,623 is the result of cash available out of the disclosed cash of Rs. 6.84 crores which was included in the disclosure petition. Further, addition of Rs. 15 lakh on account of alleged cash receipts from Sampoorna Logistics, which was alleged to be reimbursement, it is clear that expenditure recorded in the books of account can be held to be undisclosed income of the assessee if the said expenditure is found to be false. It is the Department on whom, onus of proving that expenditure recorded in the books is bogus or false based on documentary evidences found in the course of search. Here in the present case, no documentary evidences establishing the falsity of claim of transportation charges paid to Sampoorna Logistics was found in the course of search. According to us the said expenditure cannot be held to be undisclosed income of the assessee for the purpose of levying penalty u/s. 271AAA of the Act.
The assessee made payment for such publicity to SAL without deduction of tax at source.
The Assessing Officer contended that the act of publicising assessee’s business would come under the preview of advertisement and, therefore, payment made for the same was to be subjected to TDS under section 194C. Consequently, the Assessing Officer treated assessee as an assessee-in-default under section 201(1) and levied penalty on it under section 271C.
On appeal, the Commissioner (Appeals) deleted the penalty levied under section 271C for the reason that assessee was not liable to deduct TDS under section 194C.

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