2012 (10) TMI 356 - AT - Income Tax

Penalty levied u/s 271(1)(c) Whether penalty levied u/s 271(1)(c) on person on whom protective assessment made by AO - Directors admits they were carrying on the business of issuing accommodation entries AO state that income is to be assessed in the hands of directors on substantive basis, but to protect interest of revenue, commission income earned in respect of these transactions is being assessed in the hands of the assessee, on protective basis AO raised penalty u/s 271(1)(c) on assessee Held that - Even as per the Revenue, the income does not belong to the assessee, therefore, the assessee cannot be held to be guilty of concealment of income for which penalty u/s 271(1)(c) can be levied. The penalty, if any, can be levied in the hands of the person to whom the income actually belongs and not to the assessee in whose hands the department assessed the income on protective basis. Decision in favour of assessee

Summary

Issues:
Penalty under Section 271(1)(c) of the Income-tax Act, 1961 levied on the assessee.

Analysis:
The case involved appeals by the assessee against the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961. The penalty amounts for different assessment years ranged from Rs. 29,393 to Rs. 12,16,654. The facts revealed that a search conducted under Section 132 uncovered that individuals were conducting business in the names of fictitious concerns, operating multiple bank accounts with substantial deposits. Statements recorded during the search confirmed the operation of bogus transactions to earn commission income. The Assessing Officer acknowledged the commission income earned by the individuals and assessed it in their hands, while also assessing a protective commission income in the hands of the assessee company. The Assessing Officer levied penalties under Section 271(1)(c) on the assessee for the protective commission income, a decision upheld by the CIT(A), leading to the appeals.

The primary contention raised by the assessee was that once the income was assessed in the hands of the individuals, there should be no assessment of income in the hands of the assessee, even on a protective basis. The assessee argued that since the income was substantively assessed in the hands of the individuals, there should be no penalty under Section 271(1)(c) on the assessee. The Department, however, argued that as the determination of income in the individuals' hands was not final, the penalty on the assessee was justified. The ITAT analyzed the case, noting that the individuals were involved in issuing accommodation bills and earning commission income, with the income to be assessed in their hands. The ITAT observed that the issue was regarding the penalty under Section 271(1)(c) and not the assessability of income. It was clarified that the income did not belong to the assessee but to the individuals, and the assessee was assessed to protect the Revenue's interest. Therefore, the ITAT concluded that the penalty could not be imposed on the assessee for concealment of income that did not belong to it. Consequently, the ITAT canceled the penalties levied under Section 271(1)(c) on the assessee for all the years in question.

In conclusion, the ITAT allowed all the appeals of the assessee, canceling the penalties imposed under Section 271(1)(c) for the protective commission income assessed in the hands of the assessee company.