2015 (12) TMI 282 - AT - Income Tax

Penalty u/s 271(1)(c) - failure to substantiate the claim of expenditure on account of commission payment - Held that - The entire conspectus of facts emerging from record does establish that the assessee fail. So however, in order to hold the assessee guilty of furnishing inaccurate particulars within the meaning of section 271(1)(c) of the Act, it is imperative to demonstrate that assessee is found to have made an erroneous or a false claim. Clearly, failure to substantiate a claim cannot be equated to a case of making of a false or an erroneous claim. In fact, the mere making of a claim, which is not found sustainable by the Assessing Officer does not ipso facto justify furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act, as held by the Hon ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd., ( 2010 (3) TMI 80 - SUPREME COURT). In the present case, ostensibly, the payment of commission expenditure has been made by cheques and the requisite tax has also been deducted at source. The recipient has also confirmed receiving of commission payment from the assessee. The assertion of the appellant assessee that similar payments made in the past have been allowed, is also not disputed by the Revenue. The aforesaid features of the claim do not establish that the claim made in the return of income was not a bonafide claim. While there may be justifiable reasons for disallowing the claim of expenditure, so however, that by itself cannot be a ground for levy of penalty under section 271(1)(c) of the Act. It is a well settled proposition that the assessment proceedings and the penalty proceedings are independent proceedings and the finding in the assessment proceedings are not conclusive so as to govern the penalty proceedings, though such findings in the assessment proceedings may be a relevant criteria. Notably, in the present case, the entire case set-up by the Assessing Officer to levy penalty is based on the disallowance effected during the assessment proceedings, where the only failure of the assessee was non-substantiation of the claim for expenditure. In our view, merely because the expenditure on account of commission payment has been found to be unsubstantiated and disallowed in assessment proceedings, the same ipso facto does not justify levy of penalty under section 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues involved:
Penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2004-05 and 2006-07 based on disallowance of expenditure claimed as export commission.

Analysis:
1. Imposition of Penalty: The appeals were filed against the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Act for both assessment years. The penalty amounts were &8377; 3,50,528/- for A.Y 2004-05 and &8377; 1,22,400/- for A.Y 2006-07. The AO disallowed the claimed expenditure for export commission as the recipient could not substantiate the services rendered. This led to the imposition of penalties by the AO, which were upheld by the CIT(A) as well.

2. Assessee's Contentions: The representative for the assessee argued that there was no concealment of income or furnishing of inaccurate particulars, as all relevant information was disclosed. It was highlighted that similar payments to the recipient in previous years had been allowed. The assessee contended that the penalty was unjustified.

3. Revenue's Justification: The Departmental Representative (DR) supported the CIT(A)'s decision, stating that the assessment proceedings revealed the lack of genuineness in the claim for the commission payment. Thus, the penalty was justified based on the disallowance.

4. Judgment and Analysis: The Tribunal analyzed the case and found that while the claim for commission payment was not substantiated, it did not amount to furnishing inaccurate particulars of income as per section 271(1)(c) of the Act. The Tribunal referred to the Supreme Court's decision in CIT vs. Reliance Petro Products Ltd., emphasizing that a mere failure to substantiate a claim does not equate to furnishing inaccurate particulars. The Tribunal noted that the expenditure was made through cheques with tax deducted at source, and past similar payments had been allowed. Therefore, the disallowance in the assessment proceedings did not automatically warrant a penalty under section 271(1)(c).

5. Decision: The Tribunal set aside the CIT(A)'s order and directed the AO to delete the penalties imposed for both assessment years, amounting to &8377; 3,24,360/- for A.Y 2004-05 and &8377; 1,24,400/- for A.Y 2006-07. The Tribunal held that the disallowance of the expenditure did not justify the imposition of penalties under section 271(1)(c) of the Act.

6. Conclusion: The Tribunal allowed both appeals of the assessee, emphasizing that the failure to substantiate a claim does not automatically lead to a penalty for furnishing inaccurate particulars of income, especially when the claim was not found to be false or erroneous.