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Issues involved:
The deduction of consultancy fee claimed by the assessee in the Income-tax Return for the assessment year 1985-86 was disallowed by the Assessing Authority, leading to penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961. Judgment Details: Issue 1: Disallowance of consultancy fee deduction In the relevant Income-tax Return, the assessee claimed a deduction of consultancy fee allegedly paid to a firm for securing contracts. The Assessing Authority disallowed the expenditure due to lack of sufficient evidence for a genuine business cause. Penalty was imposed under section 271(1)(c). The CIT (Appeals) upheld the penalty, but the ITAT allowed the appeal. The Full Bench clarified that the power to impose penalty depends on the satisfaction of the Income-tax Officer, which must be evident from the order. The Assessing Authority's order lacked a clear finding on concealment of income or furnishing inaccurate particulars, thus penalty proceedings were without jurisdiction. Issue 2: Assessment of genuineness of expenses The Assessing Authority disallowed the consultancy fee expense due to insufficient evidence justifying the payment. However, there was no indication in the order that the transaction was a sham or not genuine. The order lacked a prima facie satisfaction regarding inaccurate particulars of the expenditure, as required under section 271(1)(c). Therefore, penalty proceedings could not be initiated against the assessee based on the Assessment Order. The High Court upheld the ITAT's decision, stating that no substantial question of law arose in the case, and dismissed the appeal accordingly.
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