2014 (10) TMI 172 - AT - Income Tax

Levy of penalty u/s 271(1)(c) Explanation of payment to four persons made or not Held that - No penalty on account of concealment and/or furnishing inaccurate particulars of income u/s 271(1)(c) could be levied, while, where not so, the provision of Explanation (1B) would stand attracted - The onus to rebut the statutory presumption of Explanation (1A) and Explanation (1B), which puts the burden of substantiating its case on the assessee, failing which it would be deemed to have concealed and/or furnished inaccurate, particulars of income following the decision in CIT v. Atul Mohan Bindal 2009 (8) TMI 44 - SUPREME COURT - where the disallowance leading to the variation between the assessed and returned incomes is u/s. 40(a)(ia), being independent of the provision where-under the same (disallowance) is effected - the question of levy or otherwise of penalty would have to be necessarily examined w.r.t. the assessee s case for the claim of expenditure in view of non-obstante clause of s.40(a)(ia), as indeed would be the case for any other provision. There is no iota of evidence on record to exhibit the services having been rendered by the different payees, and toward which the payments have ostensibly been made it cannot be considered as an argument in favour of the assessee having made a claim for expenditure, which on facts stands proved and/or established, which would amount to turning the A.O. s observation/argument on its head, much less of the assessee having thus proved the expenditure in terms of section 37(1), so that the only detriment to its allowability is the non-deduction of tax at source - The assessee s claim, made before us, that the only reason for the disallowance, or its sustenance, is invocation or applicability of section 40(a)(ia) is without basis in facts. The assessee has claimed the impugned sum as expenditure u/s. 37(1) r/w s. 40(a)(ia) by depositing TDS, ostensibly as commission, for AY 2010-11, thereby debunking its claims, both qua share of profit and diversion by overriding title - The acceptance of its claim for A.Y. 2010-11 by the Revenue would be of no consequence - A return processed u/s.143(1) cannot be regarded as an acceptance of the assessee s return, the provision, w.e.f. 01.06.1999, does not even entitle the Revenue to make any prima facie adjustment to an assessee s return - the levy of penalty u/s. 271(1)(c) of the Act as sustainable in law Decided against assessee.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance of expenses due to non-deduction of tax at source under section 40(a)(ia).
3. Validity of the assessee's claim of expenses and/or diversion by overriding title.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The core issue is whether the assessee has a plausible explanation for its claim of Rs. 42 lacs paid to four persons, and if not, whether the penalty for concealment or furnishing inaccurate particulars of income under section 271(1)(c) is justified. The onus to rebut the statutory presumption under Explanation (1A) and (1B) of section 271(1)(c) lies on the assessee. The Tribunal relied on several Supreme Court decisions to establish that the burden of substantiating the claim is on the assessee. The Tribunal concluded that the assessee failed to provide a plausible explanation, thus attracting the penalty provisions.

2. Disallowance of Expenses Due to Non-Deduction of Tax at Source:
The assessee claimed payments totaling Rs. 42 lacs to four parties as professional fees or commission, which were disallowed due to non-deduction of tax at source under section 40(a)(ia). The Tribunal noted that the nature of the payments was not proved in terms of services rendered by the payees, and the assessee's claim that the disallowance was solely due to non-deduction of tax at source was unfounded. The Tribunal emphasized that the disallowance was confirmed because the nature of the receipt and the corresponding payments were not established.

3. Validity of the Assessee's Claim of Expenses and/or Diversion by Overriding Title:
The assessee argued that the payments were for specific services rendered by the payees and not a joint venture or an association of persons. However, the Tribunal found no evidence to support the claim of services rendered. The payments appeared to be part of a joint venture project, contradicting the assessee's claim. The Tribunal also rejected the assessee's alternative claim of diversion by overriding title, as the payments were considered an application of income rather than a diversion. The Tribunal highlighted inconsistencies in the assessee's explanations and the lack of clarity in the transactions.

The Tribunal scrutinized the assessee's accounting treatment and found no basis for the claim of expenses or diversion by overriding title. The payments were made towards the end of the year, despite the receipt of funds earlier, raising doubts about the genuineness of the transactions. The Tribunal also noted that the payees claimed expenditure against the payments, contradicting the assessee's claim of profit sharing. Additionally, the assessee's subsequent claim of the impugned sum as expenditure for a later assessment year further undermined its position.

Conclusion:
The Tribunal concluded that the levy of penalty under section 271(1)(c) was sustainable as the assessee failed to provide a reasonable explanation for the disallowed expenses. The appeal by the assessee was dismissed, and the penalty was upheld. The order was pronounced in the open court on September 25, 2014.