2012 (9) TMI 834 - AT - Income Tax

Penalty u/s 271(1)(c) - search and seizure - penalty levied in respect of additions made due to filing of inaccurate particulars of income and the resultant attempt to conceal its true income chargeable to tax - Held that - In respect of addition made on account of payment of sub-brokerage to Mr Jain on ground of ingenuity of transaction it is observed that Mr jain entered into a contract for the purchase of unit of UTI totaling to Rs. 13.48 crores, surprisingly without paying a single rupee as margin money and amount of 15 lakhs became due to him on sale of such units. It is observed that assessee has grossly failed to substantiate its explanation and establish the genuineness of the transaction. Also, assuming yet not accepting, in this transaction also assessee must have received brokerage and the profit on the above said transactions is earned by Mr Jain, which the assessee has paid to Mr Jain, then , how can this payment of Rs.15 lacs be claimed as expenses by the assessee. In view of aforesaid, penalty is confirmed Payment of sub-brokerage to Shri Rana - fixed monthly payments - Held that - Brokerage is always paid as a fixed percentage agreed by the party on the value of the transaction. However, in the instant case, the payment is majorly uniform throughout the year. Though payments have been paid by account payee cheque, but the assessee has failed to substantiate as to why a fixed sum of money has been paid to a sub broker. Genuineness of the transaction has not been proved by bringing any cogent material on record. Penalty confirmed. Payment to D&Co - cash method of accounting - dis-allowance on ground that cheque was not cleared before the end of the accounting year - Held that - No penalty can be levied on this dis-allowance which is only based on the accounting principles. Payment to R&Co. - difference in security - Held that - Whatever has been brought on record has only confirmed the payment but the genuineness of the transaction has not been proved. Even the bank advice and the confirmation filed do not have the details of transaction nor any contract note has been filed or brought on record. As the assessee has grossly failed to substantiate its explanantion on each account and is hit by explanation 1B of sec 271 1 c - Decided partly against assessee

Summary

Issues:
Challenge to correctness of order for assessment year 1990-91, Levy of penalty u/s. 271(1)(c) of the Act at Rs. 14,25,654.

Analysis:
The Appellate Tribunal ITAT Mumbai heard the appeal challenging the order of Ld. CIT(A)-40, Mumbai for the assessment year 1990-91, specifically regarding the levy of penalty u/s. 271(1)(c) of the Act amounting to Rs. 14,25,654. The case involved a search and seizure action u/s. 132 of the Act in 1990, with subsequent assessment and appeals. The ITAT directed the Ld. CIT(A) to reconsider the grounds, leading to confirmed additions accepted by the assessee. The penalty proceedings u/s. 271(1)(c) were initiated based on inaccurate particulars of income and concealment. The AO sought explanations regarding the additions, and after due consideration, levied the penalty, which was upheld by the Ld. CIT(A).

The main contention of the assessee was that the penalty should not be levied merely because no further appeal was preferred against the quantum addition. The legal argument presented was that penal proceedings differ from assessment proceedings. The provisions of Sec. 271(1)(c) r.w. Explanation-1(A&B) were analyzed, emphasizing on failure to offer explanations or offering false explanations. The Tribunal scrutinized each addition separately to determine the justification for the penalty.

Regarding the payment to Shri Rajendraprasad Jain of Rs. 15,00,000, the Tribunal found the explanation provided by the assessee insufficient to establish the genuineness of the transaction. The lack of substantiating evidence led to the confirmation of the penalty on this disallowance. Similarly, the payment of sub-brokerage to Shri N.N. Rana for Rs. 1,02,100 lacked proper documentation and failed to prove the genuineness of the transaction, justifying the penalty imposition.

However, the disallowance of Rs. 50,000 to Darashaw & Co. was considered purely on technical accounting grounds and not deemed fit for penalty imposition. Lastly, the payment of Rs. 9,88,000 to American Express/M/s. Relan & Co. was also found unsubstantiated, leading to the confirmation of the penalty on this disallowance. The Tribunal upheld the penalty on the specified additions due to the assessee's failure to substantiate explanations, as per Explanation 1B of sec 271(1)(c) of the Act.

In conclusion, the appeal was partly allowed, granting relief on the penalty for payment to Darashaw & Co. The AO was directed to recompute the penalty accordingly, affirming the penalty on other specified additions.