2014 (7) TMI 390 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Ad hoc Payment of wages on estimation Held that - There is no evidence brought on record on behalf of the Revenue to prove that the assessee was indulging in making entries of bogus payments in its wage account - the assessee has submitted that signatures of some of the employees might not be tallied as the same employees might have signed differently in different style in different months, and also that it might be that the other employee might have put the signature on behalf of the employees concerned - the disallowance has been made by the department out of wage expenses by way of estimate only - The disallowance was considered at this second appellate stage by the Tribunal and some part relief out of this disallowance out of wages was allowed to the assessee in the quantum appeal of the assessee - it cannot be said that the assessee has admitted bogus payment claimed under the head wage expenses - since it is a case of disallowance made out of wage expenses for the reason that the assessee could not establish the same fully with documentary evidences, it is not a fit case for levy of penalty u/s 271(1)(c) Decided in favour of Assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 1998-1999 based on disallowance of payment of wages.

Analysis:
The appeal was against the orders of the CIT(A) regarding the imposition of a penalty under section 271(1)(c) of the Act. The assessee contended that the disallowance of wages was based on estimates and not on admitting bogus wages, hence penalty should not be levied. The counsel cited various decisions to support this argument. On the other hand, the department argued that the disallowance was not purely based on estimates but on admitted bogus wages, relying on relevant case laws.

The Tribunal noted that there was no evidence to prove that the assessee made entries of bogus payments in the wage account. The assessee's reply indicated that discrepancies in signatures were due to various reasons, not necessarily indicating bogus payments. The Tribunal found that the disallowance was made on an estimate basis, and the assessee did not admit to making bogus payments. It was observed that the department failed to establish that the assessee was indulging in such practices. The Tribunal also considered that some relief was granted to the assessee in the quantum appeal. Therefore, it was held that since the disallowance was based on lack of documentary evidence and not on admitted bogus payments, the penalty under section 271(1)(c) was not justified and was accordingly cancelled, allowing the appeal of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, cancelling the penalty imposed under section 271(1)(c) for the assessment year 1998-1999, as the disallowance of wages was made on an estimate basis and not due to admitted bogus payments.