2010 (7) TMI 678 - AT - Income Tax

Penalty u/s 271(1)(c) - Disallowance - it is noticed that the assessee has paid commission to the 14 concerns without any services rendered by them - assessee has not been able to prove that actual services have been rendered by the sister concern for which the commission have been paid - assessee did not filed any petition before us to admit additional evidence as per Rule 29 of the ITAT Rules - The particular of a commission furnished by the assessee are inaccurate in the sense that the assessee claimed the commission expenditure against which no services rendered - The heavy burden is on assessee particularly when the commissions were paid to sister concerns. The assessee has failed to discharge its burden as no materials were produced to show that the commission paid against the services rendered - Once the case is covered by section 271(1)(c) penalty is leviable - Decided against the assessee

Summary

Issues Involved:
1. Confirmation of penalty levy under section 271(1)(c) of the Income-tax Act.
2. Disallowance of commission payments to sister concerns.
3. Validity of statements recorded during the survey and their subsequent retraction.
4. Applicability of Explanation 1 to section 271(1)(c) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levy Under Section 271(1)(c):
The primary issue in the appeal was whether the CIT(A) erred in confirming the levy of penalty amounting to Rs. 60,02,488 under section 271(1)(c) of the Income-tax Act. The Assessing Officer (AO) had levied this penalty on the grounds that the assessee had furnished inaccurate particulars of income by claiming false expenses in the form of commission payments. The CIT(A) upheld this penalty, and the ITAT confirmed the CIT(A)'s order, noting that the assessee failed to discharge the burden of proof regarding the genuineness of the commission payments.

2. Disallowance of Commission Payments to Sister Concerns:
The AO disallowed commission payments totaling Rs. 1,71,49,967 made to 14 sister concerns, concluding that no actual services were rendered by these entities. This conclusion was based on statements recorded during a survey conducted on 05-10-2000. The CIT(A) and ITAT both upheld the AO's disallowance, emphasizing that the assessee did not provide any agreements or supporting evidence to substantiate the commission payments. The ITAT specifically noted that the taxes paid by the sister concerns did not justify the deduction without evidence of services rendered.

3. Validity of Statements Recorded During the Survey and Their Subsequent Retraction:
The assessee argued that the statements of Mr. S.K. Parekh, recorded during the survey, were retracted through an affidavit dated 12-01-2002. The affidavit claimed that the statement was made under duress and in a confused state of mind. However, the ITAT dismissed this retraction, noting that the affidavit was filed after the completion of the assessment and was not discussed by the AO or CIT(A). The ITAT also highlighted that the assessee did not file a petition to admit additional evidence as per Rule 29 of the ITAT Rules.

4. Applicability of Explanation 1 to Section 271(1)(c) of the Income-tax Act:
The ITAT examined whether the penalty under section 271(1)(c) was applicable in light of Explanation 1, which deals with deemed concealment. The ITAT concluded that the assessee had concealed particulars of income and furnished inaccurate particulars by claiming commission expenses without rendering services. The ITAT emphasized that the assessee's failure to substantiate its claim and the incorrect accounting entries indicated a direct attempt to hide the true nature of the commission payments. The ITAT upheld the penalty, noting that the assessee's actions were covered by the provisions of section 271(1)(c) and that the claim of commission expenditure was not bona fide.

Conclusion:
The ITAT dismissed the appeal, confirming the penalty under section 271(1)(c) for furnishing inaccurate particulars of income and claiming false expenses. The disallowance of commission payments was upheld due to the lack of evidence of services rendered. The retraction of statements recorded during the survey was not accepted, and the applicability of Explanation 1 to section 271(1)(c) was affirmed, leading to the conclusion that the penalty was justified.