2015 (2) TMI 505 - HC - Income Tax

Penalty u/s Section 271 (1) (c) - non deduction of TDS - disallowance of expenditure - Held that - In the present case, records would indicate that in the course of the proceedings, the enquiries were made from Simoco and its books and returns were apparently scrutinized. These showed that the amounts received by the said concern were reflected. That apart, TDS deductions and deposits were also made in respect of the fees and amounts paid to the Simoco. Furthermore, Simoco was itself owned by third concern, i.e., Phillips UK. The assessee had explained the need to engage Simoco, i.e., that its ability to market its products, was restricted on account of lack of technical expertises and personnel. To substantiate this, it relied upon the response given by various government agencies/users, which had, in fact, stated that Simoco's representative used to visit it on behalf of the assessee. This Court is of the opinion that there can be no doubt that mens rea or willingness is not an essential principal requisite for initiation and imposition of penalty under Section, 271 (1) (c), yet, it is important to notice that the provision itself is discretionary and the assessee is free to furnish the justification for a particular conduct - in the present case, of claiming certain expenditure. That ultimately such expenditure was disallowed on merits could not automatically result in the imposition of a penalty, akin to the AO's approach. Having regard to the materials placed on the record, which were analysed in detail and discussed, this Court is of the opinion that the reasoning and conclusions of the courts below being entirely facts based, do not involve determination of any substantial question of law. The appeal is, therefore, dismissed. - Decided in favour of assessee

Summary

Issues:
Revenue's appeal against deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Disallowance of Expenditure
The assessee claimed expenditure for commission and professional fees to a concern named STSAL. The CIT (A) upheld the assessee's contentions, stating that the appellant provided justifiable explanations supported by documentary evidence. The ITAT also confirmed this decision, mentioning that the payments were made to STSAL for services rendered in procuring orders, leading to profits for the company. The ITAT further noted that the appellant furnished necessary documents to support the explanation, indicating a prima facie justifiable explanation for the expenses.

Issue 2: Disallowance of Expenditure and Penalty
The AO disallowed the payments made to STSAL, which was confirmed by the Hon'ble Delhi High Court. The AO also levied a penalty, which was later deleted by the CIT (A). The ITAT discussed the necessity for the assessee to prove that the expenditure was incurred wholly and exclusively for business purposes. The ITAT emphasized that the confirmation of the addition in quantum proceedings does not automatically lead to the imposition of a penalty. The ITAT also highlighted that the explanation provided by the assessee was bona fide, as all facts were disclosed to the AO, and the expenditure was incurred under agreements. The ITAT referred to relevant case laws to support its decision, emphasizing that mens rea is not a mandatory requirement for imposing a penalty under Section 271(1)(c).

Issue 3: Conclusion
The High Court dismissed the appeal, stating that while mens rea is not a mandatory requirement for imposing a penalty, the provision is discretionary, and the assessee has the opportunity to provide justification for the claimed expenditure. The High Court found that the reasoning and conclusions of the lower courts were based on factual analysis and did not involve any substantial question of law, leading to the dismissal of the appeal.