2016 (1) TMI 181 - HC - Income Tax

Penalty u/s 271(1)(c) - Held that - Revenue has not been in a position to show that the payments of commission made by the assessee, which is said to have been assessed to tax, were bogus in nature. Further, there is nothing on record to show that the assessee had concealed the particulars of its income or had furnished inaccurate particulars of such income. In such circumstances, we do not find any merit in the appeals filed by the Revenue. As such, the question of law raised in the present appeals is answered in favour of the respondent assessee and against the Revenue.

Summary

Issues Involved:
1. Legitimacy of the commission payments as deductible business expenses.
2. Applicability of Section 271(1)(c) of the Income Tax Act, 1961, for levying penalties on the assessee for alleged concealment of income or furnishing inaccurate particulars.

Detailed Analysis:

Legitimacy of the Commission Payments:
The assessee, engaged in the dealership and distribution of industrial chemicals, claimed deductions for commission payments made to D.D.Vyas and his sons. The Assessing Officer disallowed these claims, concluding no services were rendered by the agents, based on a survey conducted on D.D.Vyas. The Commissioner of Income Tax (Appeals) overturned this disallowance, stating the commission payments were not false or inaccurate. The Income Tax Appellate Tribunal (ITAT) upheld this decision, noting that the Revenue did not provide evidence that the payments were bogus or that the decisions in CIT Vs. Reliance Petroproducts Private Limited and other cited cases were inapplicable. The Tribunal found that the payments were made through cheques and assessed to tax, and there was no evidence of the money being returned to the assessee.

Applicability of Section 271(1)(c) for Penalties:
The Revenue argued that the assessee concealed income and furnished inaccurate particulars by claiming false commission payments, thus justifying penalties under Section 271(1)(c). The Tribunal, however, found no evidence to support this claim. It was noted that the payments were made through banking channels and assessed to tax, and the Revenue failed to prove the payments were not genuine or that the amounts returned to the assessee. The Tribunal also referenced the Supreme Court decision in CIT Vs. Reliance Petroproducts Private Limited, which held that merely making an unsustainable claim does not amount to furnishing inaccurate particulars of income. The Tribunal concluded that the Revenue did not discharge the onus of proving the assessee's claims were false, thus penalties under Section 271(1)(c) were not warranted.

Conclusion:
The High Court upheld the Tribunal's decision, finding no reason to interfere with the ITAT's order. The Court noted that the Revenue failed to prove that the commission payments were bogus or that the assessee concealed income or furnished inaccurate particulars. Accordingly, the appeals filed by the Revenue were dismissed, and the question of law was answered in favor of the assessee.