2012 (8) TMI 258 - AT - Income Tax

Penalty notice u/s 271(1)(c) - Deduction u/s 80G since the return was loss return claim was made u/s 37(1) Held that - Since there was loss as per returned income, deduction under section 80G was not admissible - assessee did not explain to the Income-tax authorities or to the Tribunal circumstances in which the mistake took place - Assessing Officer was justified in disallowing deduction and also levying penalty under section 271(1)(c) for furnishing wrong particulars of income when it was not proved that claim was made by mistake and there was no mala fide intention - assessee is liable to penalty Penalty u/s 271(1)(c) - disallowance of commission Held that - Disallowance has been deleted in the assessment of the assessee for assessment year 2006-07. However, the assessee did not prefer appeal in this year - Failure to file appeal and to obtain legitimate relief cannot lead to inference of penalty - even though the payment of commission has been disallowed in this year, the fact of the matter is that the assessee could have got this relief by following up the matter in the higher appellate forums - no penalty is leviable in respect of the disallowance of commission - appeal is partly allowed.

Summary

Issues Involved:
1. Levy of penalty for disallowance of claims under Section 80G.
2. Levy of penalty for disallowance of commission paid to a foreign party.

Detailed Analysis:

1. Levy of Penalty for Disallowance of Claims under Section 80G:
The assessee claimed a deduction under Section 80G for donations amounting to Rs. 50,98,500/-, which was disallowed by the Assessing Officer (AO) on the grounds that the gross total income was a loss, making the deduction inadmissible. The AO issued a penalty notice under Section 271(1)(c) for concealing particulars of income. The assessee argued that the claim was a mistake due to oversight and no tax advantage was gained since the total income was computed at a loss. The CIT(A) upheld the penalty, stating that the claim was prima facie inadmissible and the explanation was not bona fide.

The Tribunal noted that the assessee's return was filed on the last date, and the error was due to oversight, compounded by the auditor's failure to highlight the donation in the audit report. The Tribunal referred to the Supreme Court's decision in Reliance PetroProducts (P.) Ltd., which held that mere making of an unsustainable claim does not amount to furnishing inaccurate particulars. However, the Tribunal distinguished this case from Zoom Communications Ltd., where the explanation was neither substantiated nor bona fide. The Tribunal concluded that the assessee's explanation was not bona fide, as the error was significant and no responsible action was taken to rectify it. Therefore, the penalty for the disallowed donation claim was upheld.

2. Levy of Penalty for Disallowance of Commission Paid to a Foreign Party:
The assessee paid a commission of Rs. 18,89,158/- to a foreign party, UTELL, without deducting tax at source, leading to disallowance under Section 40(a)(i). The AO and CIT(A) upheld the disallowance and imposed a penalty, stating that the assessee failed to obtain a certificate under Section 195(2) and thus concealed particulars of income.

The Tribunal noted that in the subsequent assessment year (2006-07), a similar disallowance was deleted by the Tribunal, which held that no tax was required to be deducted at source if the payment was not chargeable under the Act. The Tribunal found that the assessee had disclosed all facts and relied on the decision in A.B. Hotel Ltd., where it was held that commission paid to non-resident agents without a permanent establishment in India was not taxable. The Tribunal concluded that the assessee's explanation was bona fide and substantiated by legal precedent, and thus, no penalty was leviable for the disallowed commission.

Conclusion:
The Tribunal partially allowed the appeal, upholding the penalty concerning the disallowed donation claim under Section 80G but deleting the penalty for the disallowed commission paid to the foreign party.