2013 (5) TMI 716 - AT - Income Tax

Penalty u/s. 271(1)(c) - CIT(A) deleted the penalty - AO was of the opinion that assessee had furnished inaccurate particulars of income - Held that - In this case return of income was filed in November, 1997 and claim about the overriding commission was made by the assessee, though the agreement for paying the same had already lapsed. Original agreements for making payments for overriding commissions were up to the period of 31.03.1995 only and after last date of that financial year same were not renewed. Both the parties had not rendered any services to the assessee during the year under consideration, even then assessee - company claimed that an expenditure amounting to Rs.62.04 Lakhs was paid to them. Not only it was claimed before the AO, but the issue was agitated up to the level of the Tribunal by the assessee. There is no doubt that assessee wanted that claim made by it should be allowed, even though proof of rendering of services by NCL and GTSL or existence of agreements was lacking. Clearly, a false claim was not only made by the assessee, but it was agitated before the highest fact finding authority Assessee knew that there was no agreement for payment of commission for the year under consideration with both the companies and that the claim made was not true, even then it tried to convince both the appellate authorities that claim made by it was genuine. Therefore, it can safely be held that the claim made by the assessee was not only wrong, but also false and it was persisted with for a very long time. The assessee had not furnished any satisfactory explanation as to why a prima facie inadmissible claim was made in the return. In favour of revenue.

Summary

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) for concealment of particulars of income.
2. Deletion of penalty proceedings under Section 271(1)(c) regarding commission paid to M/s. Neeraj Consultants Ltd.
3. Restoration of the Assessing Officer's order by setting aside the CIT(A)'s order.

Issue-wise Detailed Analysis:

1. Deletion of penalty levied under Section 271(1)(c) for concealment of particulars of income:

The Assessing Officer (AO) found that the assessee-company had claimed an overriding commission of Rs. 62.04 Lakhs (Rs. 30.93 Lakhs to M/s. Neeraj Consultants Ltd. (NCL) and Rs. 31.10 Lakhs to M/s. Gwalior Transmission Systems Ltd. (GTSL)). The AO disallowed these claims, stating that the assessee failed to provide evidence of services rendered by these companies. The Tribunal confirmed the disallowance, noting that the assessee could not produce any evidence of services rendered by NCL and GTSL. The AO initiated penalty proceedings under Section 271(1)(c), asserting that the assessee furnished inaccurate particulars of income. The First Appellate Authority (FAA) deleted the penalty, stating that the reversal of entries in the subsequent year indicated a bona fide mistake, and there was no material to justify lack of bona fide or any cross angle. However, the Tribunal disagreed, holding that the claim was patently disallowable, and the penalty was rightly levied by the AO. The Tribunal emphasized that the assessee's persistent false claim indicated a mala fide intention, justifying the penalty under Section 271(1)(c).

2. Deletion of penalty proceedings under Section 271(1)(c) regarding commission paid to M/s. Neeraj Consultants Ltd.:

The AO disallowed the commission paid to NCL, stating that the assessee failed to produce any evidence of services rendered by NCL. The FAA held that the assessee had prima facie discharged the burden of proof regarding the commission paid to NCL and that no penalty proceedings were initiated by the AO in respect of this disallowance. The FAA concluded that the penalty under Section 271(1)(c) could not be levied for the commission paid to NCL. However, the Tribunal found that the assessee's claim was false and persisted with the claim despite lacking evidence of services rendered by NCL. The Tribunal held that the assessee's explanation was unsatisfactory and that the false claim justified the penalty under Section 271(1)(c).

3. Restoration of the Assessing Officer's order by setting aside the CIT(A)'s order:

The Tribunal reversed the FAA's order, holding that the claim made by the assessee was patently disallowable and that the penalty was rightly levied by the AO. The Tribunal noted that the assessee's false claim was made to gain a tax advantage and that the reversal of entries in the subsequent year did not prove an inadvertent mistake. The Tribunal emphasized that the assessee had not come with clean hands and that the penalty under Section 271(1)(c) was justified. Consequently, the Tribunal allowed the AO's appeal and restored the AO's order, setting aside the FAA's order.

Conclusion:

The Tribunal held that the assessee's claims for commission payments to NCL and GTSL were false and unsupported by evidence. The Tribunal found that the assessee's persistent false claims indicated a mala fide intention, justifying the penalty under Section 271(1)(c). The Tribunal reversed the FAA's order and restored the AO's order, allowing the appeal filed by the AO. The Tribunal emphasized that the penalty provisions aim to curb tax evasion arising from concealment of income or furnishing inaccurate particulars of income.