2012 (2) TMI 96 - AT - Income Tax

Penalty u/s 271(1)(c) dis-allowance u/s 40A(2)(b) on estimate basis Held that - Assessee has made complete disclosure of payment of commission in its relevant tax audit reports. However, Revenue without pointing out any material to show that no such payment was made or the same was denied by the recipient, while invoking the provisions of section 40A(2)(b) allowed the payment of commission on estimate basis at the rate of 5% as against 12.5% claimed by the assessee. Thus, there is no dispute that the dis-allowance of commission is purely on estimate basis. Therefore, we hold that there is no concealment on the part of the assessee which may call for levy of penalty u/s 271(1)(c) and accordingly the penalty stands deleted. See CIT vs. Reliance Petroproducts Pvt. Ltd. (2010 - TMI - 75701 - Supreme Court) Decided in favor of assessee.

Summary

Issues:
1. Disallowance under section 40A(2)(b)
2. Penalty proceedings under section 271(1)(c) of the Income Tax Act

Issue 1: Disallowance under section 40A(2)(b):
The case involved an appeal by the assessee against the order passed by the ld. CIT (A) for the Assessment Year 2004-05. The assessee, engaged in the business of manufacturing and sale of Polyester films, had filed a return declaring total income at Rs. NIL under normal provisions of the Income Tax Act, 1961. However, the assessment was completed with various disallowances, including disallowance under section 40A(2)(b) of Rs.45,53,400/-. The Tribunal partly allowed the appeal for statistical purposes on other issues. The AO initiated penalty proceedings under section 271(1)(c) of the Act, which was upheld by the ld. CIT(A) on the disallowance under section 40A(2)(b) while setting aside other issues for fresh adjudication. The assessee challenged the penalty of Rs.2,19,76,595/- imposed by the AO under section 271(1)(c).

Issue 2: Penalty proceedings under section 271(1)(c) of the Income Tax Act:
The AO imposed a penalty of Rs.2,19,76,595/- under section 271(1)(c) after considering the relief allowed by the ld. CIT(A) in the quantum appeal. The ld. CIT(A) confirmed the penalty on the disallowance under section 40A(2)(b) as the assessee failed to substantiate its claim with evidence. The assessee contended that there was no concealment of income as full disclosure was made regarding payments. The ld. DR argued that the penalty was justified as the disallowance was confirmed by the Tribunal. The Tribunal noted that the disallowance was purely on an estimate basis and referred to the provisions of section 271(1)(c) regarding concealment and inaccurate particulars of income. Citing the decision in CIT vs. Reliance Petroproducts Pvt. Ltd., the Tribunal held that there was no concealment on the part of the assessee, and the penalty imposed by the AO and confirmed by the ld. CIT(A) was deleted. Consequently, the appeal of the assessee was allowed, and the penalty was set aside.

Judgment Summary:
The Appellate Tribunal ITAT MUMBAI addressed the issues of disallowance under section 40A(2)(b) and penalty proceedings under section 271(1)(c) of the Income Tax Act in a case involving an assessee engaged in the manufacturing and sale of Polyester films. The Tribunal found that there was no concealment of income by the assessee and deleted the penalty imposed by the AO and confirmed by the ld. CIT(A) on the disallowance under section 40A(2)(b). The decision was based on the principles outlined in the case law and the lack of evidence to support the imposition of the penalty.