2015 (6) TMI 839 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of alleged fictitious payment of commission to various persons - Held that - , it cannot be conclusively said that the employees of the assessee-company had arranged such accommodation entry and assessee was in dark up to the time when A.O. cornered the assessee. Rather the assessee was trying to justify by falling uncorroborated confirmations. Even if it is presumed that these employees were involved for such a bogus claim of fictitious payments, then the assessee was very well aware much before the scrutiny proceedings and at that time it should have come with a clean hand before the department. Under these facts and circumstances, we hold that the levy of penalty on the disallowance of ₹ 11 lakh has rightly been confirmed by the CIT(A). However it is noted that the A.O. has levied penalty of more than 200% of the tax sought to be evaded which in our opinion should be restricted to 100%. Accordingly, we hold that penalty should be levied at 100% of the tax sought to be evaded, which comes to ₹ 3,70,260. Thus, the penalty is reduced from ₹ 7,50,000 to ₹ 3,70,260 - Decided partly in favour of assessee.

Issues:
- Appeal against penalty u/s 271(1)(c) for AY 2007-2008 due to disallowance of commission payment
- Alleged fictitious payment of commission to various persons
- Justification of penalty by AO and confirmation by CIT(A)
- Admissibility of fresh evidence and its impact on penalty levy

Detailed Analysis:

1. The appeal was filed by the Revenue against the penalty imposed under section 271(1)(c) for the assessment year 2007-2008, related to the disallowance of commission payment. The assessee contested the penalty of Rs. 7,50,000 imposed for the alleged fictitious payment of commission amounting to Rs. 11,00,000.

2. The Assessing Officer (AO) found discrepancies in the claimed business promotion expenses of Rs. 11,00,000, which were purportedly paid as commission for orders procured. The AO requested details and verification of services rendered by the recipients of the commission. The assessee admitted that the payments were accommodation entries after being confronted with evidence.

3. During the penalty proceedings, the assessee explained that the commission payment arrangement was orchestrated by former employees engaged in fraud. However, both the AO and the Commissioner of Income-tax (Appeals) found the explanation unconvincing, leading to the confirmation of the penalty.

4. The assessee sought to introduce fresh evidence, a police complaint against ex-employees for misappropriation, to justify the commission payments. The argument was that the company was unaware of the fraud and made the surrender to avoid penalties, but the authorities rejected this defense.

5. The Tribunal analyzed the evidence and explanations provided by both sides. It concluded that the surrender of commission payments was not voluntary, as it only occurred after the AO exposed the fictitious nature of the entries. The penalty was reduced to 100% of the tax sought to be evaded, amounting to Rs. 3,70,260, from the initial penalty of Rs. 7,50,000.

6. The Tribunal found that the assessee's conduct did not demonstrate a bonafide belief in the legitimacy of the commission payments, and the attempt to justify the entries lacked consistency. The reduction in the penalty was based on the excessive initial penalty imposed by the AO.

In conclusion, the Tribunal partially allowed the appeal, reducing the penalty imposed on the assessee for the disallowance of commission payments, emphasizing the lack of bonafide belief and voluntary disclosure in the case.

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