2012 (3) TMI 141 - AT - Income Tax

Penalty Proceedings - Assessee marketing machine tools - AO calculation of income @5% of turnover under 44AF is erroneous - Held That - In assessee own case it has been decided that invoking of provision of 44AF are bonafide - For adjusting Commission and brokerage receipts merely non furnishing of certain paper which are not in assessee possession will not attract penalty proceedings. When claim disallowed on adhocc basis and no valid information in possession of revenue. Penalty un-justified.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act 1961 for assessment year 2006-07 based on applicability of section 44AF, adjustments to commission receipts, and disallowance of expenditure claims.

Analysis:

1. Applicability of Section 44AF:
The assessee declared commission income under section 44AF at 5% but was informed during scrutiny assessment that this provision applied only to retail businesses. The Assessing Officer (AO) determined higher income leading to penalty proceedings. The Tribunal previously held the assessee's claim under section 44AF as bonafide, favoring the assessee. The Tribunal in the present case also decided in favor of the assessee, considering the bonafide nature of the claim.

2. Adjustments to Commission Receipts:
The AO made adjustments to commission receipts due to discrepancies in the initial filing and subsequent revisions. The assessee argued that certain receipts belonged to another company and were erroneously considered in the assessment. The Tribunal gave the benefit of doubt to the assessee, as the adjusted receipts were not under the immediate control of the assessee and were reflected in the other company's income.

3. Disallowance of Expenditure Claims:
The AO disallowed various expenditure claims on an adhoc basis, citing lack of evidence. The Tribunal found that these disallowances were arbitrary and lacked direct incriminating evidence against the assessee. It was noted that penalties are not attracted when claims are merely incorrect without malicious intent. The Tribunal upheld the arguments in favor of the assessee, leading to the allowance of the appeal.

In conclusion, the Tribunal allowed the assessee's appeal against the penalty under section 271(1)(c) for the assessment year 2006-07. The decision was based on the bonafide nature of the assessee's claims under section 44AF, the benefit of doubt given regarding adjustments to commission receipts, and the arbitrary disallowance of expenditure claims without substantial evidence against the assessee. The judgment favored the assessee on all counts, leading to the allowance of the appeal.