2012 (9) TMI 283 - AT - Income Tax

Penalty u/s 271(1)(c) - dis-allowance of alleged excessive salary - assessee contended that AO has wrongly mentioned in the proceedings dated 28.12.2007 regarding confession of dis-allowance and addition in dispute, whereas assessee has not made any confessional statement before the AO - Held that - It is found in assessment proceedings especially dated 28.12.2007 that neither the assessee nor his authorized representative has signed the proceedings in which the assessee has admitted for disallowance of the amount in dispute. Almost in each and every assessment proceedings, the assessee or his authorized representative has signed. But on 28.12.2007, the same are not there, giving benefit of doubt as well as the plausible explanation given by the assessee on the addition in dispute that penalty has been wrongly confirmed - Decided in favor of assessee

Summary

Issues:
1. Disallowance of salary and bonus account.
2. Penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.

Issue 1: Disallowance of Salary and Bonus Account:
The assessee appealed against the CIT(A)'s order upholding a penalty imposed by the AO. The AO had made additions to the taxable income based on discrepancies found during a survey under section 133A of the Income-tax Act, 1961. The survey revealed discrepancies in the physical inventory of stock and salary payments. The AO disallowed an amount from the salary and bonus account, leading to penalty proceedings under section 271(1)(c) of the Act. The CIT(A) partly upheld the penalty, prompting the assessee to appeal. During the hearing, the assessee's counsel argued that the disallowance was unjustified as the salary payments were according to the list filed during assessment proceedings. The counsel also pointed out discrepancies in the AO's proceedings, where no confession of disallowance was made by the assessee. The Tribunal accepted the assessee's explanation, noting the absence of signatures on certain proceedings and the plausible nature of the explanation. Consequently, the penalty on the disallowed amount was deleted, and the appeal was allowed.

Issue 2: Penalty Proceedings under Section 271(1)(c) of the Income-tax Act, 1961:
The penalty proceedings were initiated by the AO on the additions made to the taxable income, specifically related to discrepancies in salary payments. The CIT(A) confirmed the penalty, leading to the assessee's appeal. During the appeal hearing, the assessee's counsel argued that the penalty imposition was based on incorrect grounds, highlighting errors in the AO's proceedings and the lack of a confession by the assessee regarding the disallowance. The Tribunal, after considering the arguments and reviewing the relevant records, found the assessee's explanation plausible and the penalty imposition unjustified. Noting the absence of signatures on critical documents and the reasonable nature of the assessee's contentions, the Tribunal decided to delete the penalty in dispute. As a result, the appeal filed by the assessee was allowed.

This judgment by the Appellate Tribunal ITAT, Amritsar, involved issues related to the disallowance of salary and bonus account and penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal, after thorough consideration of the facts and arguments presented, concluded in favor of the assessee, highlighting discrepancies in the AO's proceedings and the plausible nature of the explanations provided. The Tribunal's decision to delete the penalty on the disputed amount signifies the importance of proper documentation and justifiable grounds for penalty imposition in tax matters.