No concealment penalty if assessee opts to take route of presumptive taxation to escape sec. 40A(3) disallowance

Where at time of initiating penalty proceedings AO did not have any material on record showing that payments made by assessee were bogus, he could not have concluded that assessee had provided inaccurate particulars and levy penalty merely on basis of assessee's offer to be taxed on presumptive basis,

Facts

a)The assessee, a construction company, had issued large number of bearer cheques to small suppliers for delivering building material at construction site.

b)The AO disallowed said payments by invoking Section 40A(3). In response, assessee had shown its income on presumptive basis under Section 44AD to stay away from unnecessary litigation. The AO accepted the contention of assessee and completed the assessment by applying presumptive taxation.

c)After completing the assessment, the AO passed a penalty order under section 271(1)(C) and it was affirmed by the CIT (A). The Tribunal, however, set aside penalty order passed by CIT (A).The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)Since at time of initiating penalty proceedings the AO did not have any material on record to show that payments made to suppliers were bogus, he could not have concluded that assessee had provided inaccurate particulars in its return merely on basis of assessee's offer to be taxed on estimate basis,

2)Moreover, the course of action suggested by the Assessing Officer was, in fact, accepted by the assessee as reasonable. Thus, the imposition of penalty was not justified. Therefore, there was no infirmity in the impugned order of the Tribunal. - Vatika Construction (P.) Ltd v. [2014] 45 taxmann.com 471 (Delhi)