2017 (12) TMI 1552 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - Disallowance of commission - Held that - Since ITAT Ahmedabad, SMC Bench has deleted the disallowance of ₹ 41,39,131/- against which the penalty of ₹ 12,78,996/- was levied. Now they are remains no basis at all laving the penalty for concealment, therefore, we cancel the penalty.- Decided in favour of assessee

Issues Involved:

1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Legality of commission payments to doctors under Indian Medical Council regulations.
3. Applicability of CBDT Circular No. 5/2012 to the assessment year 2011-12.
4. Justification and evidence for commission payments.
5. Assessment and appellate proceedings regarding disallowance of commission expenses.

Issue-Wise Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c) of the Income Tax Act:
The core issue revolves around the penalty of ?12,78,996 levied under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) initially upheld the penalty, but the ITAT later cancelled it. The ITAT referred to a previous decision where similar disallowances were deleted, thus nullifying the basis for the penalty. The tribunal concluded that since the disallowance of ?41,39,131 was deleted, the penalty had no basis and was therefore cancelled.

2. Legality of Commission Payments to Doctors Under Indian Medical Council Regulations:
The Assessing Officer (AO) disallowed the commission payments to doctors, citing violations of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. The AO argued that the payments were prohibited by law and thus inadmissible under Section 37(1) of the Income Tax Act. The CIT(A) upheld this view, stating that the assessee failed to provide evidence of services rendered by the doctors. However, the ITAT later found that the CBDT Circular No. 5/2012, which the AO relied upon, was not applicable to the assessment year 2011-12.

3. Applicability of CBDT Circular No. 5/2012 to the Assessment Year 2011-12:
The AO and CIT(A) used CBDT Circular No. 5/2012 to justify the disallowance of commission payments. However, the ITAT referred to a previous ruling (Syncom Formulations (I) Ltd. vs. DCIT) which clarified that the circular, effective from 01/08/2012, did not apply to the assessment years 2010-11 and 2011-12. This ruling was pivotal in the ITAT's decision to delete the disallowance and, consequently, the penalty.

4. Justification and Evidence for Commission Payments:
The assessee claimed that the commission payments were for consulting services provided by the doctors. The AO and CIT(A) found the evidence insufficient, noting discrepancies in the Memorandum of Understanding (MOU) and lack of concrete proof of services rendered. The ITAT, however, focused on the applicability of the CBDT Circular, rather than the sufficiency of evidence, leading to the deletion of the disallowance.

5. Assessment and Appellate Proceedings Regarding Disallowance of Commission Expenses:
The AO initially disallowed the commission expenses and levied a penalty for furnishing inaccurate particulars of income. The CIT(A) upheld the disallowance and penalty. The assessee appealed to the ITAT, which ultimately ruled in favor of the assessee by deleting the disallowance based on the inapplicability of CBDT Circular No. 5/2012 to the relevant assessment year. Consequently, the penalty was also cancelled.

Conclusion:
The ITAT's judgment focused on the inapplicability of CBDT Circular No. 5/2012 to the assessment year 2011-12, leading to the deletion of the disallowance of commission payments and the associated penalty. The tribunal's decision was influenced by a precedent that clarified the effective date of the circular, which did not cover the assessment year in question. This judgment underscores the importance of the effective date of regulatory changes in tax assessments and penalties.

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