2016 (9) TMI 1065 - AT - Income Tax

Penalty under section 271(A)(c) - additions made on account of shortage of stock treated as unaccounted sales and disallowance of remuneration to partner paid to the private limited company - Held that - So far the penalty levied on account of shortage of stock, it was incumbent upon the assessee to give true and fair picture of the stock. Since the assessee failed to do so, in our considered view, the penalty levied on this amount cannot be deleted. However, in respect of claim of remuneration paid to the working partner, in our considered opinion, the ld. CIT(A) was not justified in sustaining the penalty in view of the judgment of the Hon ble Supreme Court in the case of Reliance Petroproducts (P) Ltd (2010 (3) TMI 80 - SUPREME COURT ). Respectfully following the ratio of decision of Hon ble Supreme Court in the case of Reliance Petroproducts (P) Ltd (supra), we hereby direct the Assessing Officer to delete the penalty on the addition made on account of disallowance of remuneration paid to the working partner. Thus, this ground of the assessee s appeal is partly allowed.

Issues:
Penalty under section 271(A)(c) of ? 3,00,000/- challenged by the assessee.

Analysis:

1. Penalty under Section 271(A)(c):
The case involved a penalty imposed under section 271(A)(c) of ? 3,00,000/- on the assessee for furnishing inaccurate particulars of income. The Assessing Officer made additions on account of shortage in stock and disallowance of remuneration paid to a working partner. The penalty was challenged by the assessee before the Commissioner of Income-tax (Appeals) and subsequently before the ITAT Ahmedabad. The key contention was whether the assessee had concealed income or furnished inaccurate particulars. The Tribunal analyzed the facts and legal precedents cited by both parties.

2. Remuneration to Working Partner:
Regarding the remuneration paid to the working partner, the Tribunal noted that the remuneration was actually paid to an individual who represented a company, not directly to the partner. The Tribunal referred to legal precedents to establish that remuneration can only be paid to individuals, not to representatives of partners or companies. It was observed that the remuneration was diverted to the company to reduce taxable income, and no separate services were rendered by the company. The Tribunal concluded that the penalty on this account was not justified, following the judgment of the Hon'ble Supreme Court in a relevant case.

3. Shortage of Stock:
In the case of shortage of stock treated as unaccounted sales, the Tribunal upheld the penalty imposed by the Assessing Officer. The Tribunal found that the partner of the appellant firm admitted that the shortage represented unaccounted sales, leading to furnishing inaccurate particulars of income. The Tribunal agreed with the Assessing Officer's decision to levy the penalty under section 271(A)(c) for this discrepancy.

4. Tribunal's Decision:
The Tribunal partially allowed the assessee's appeal, directing the Assessing Officer to delete the penalty imposed on the addition made on account of disallowance of remuneration paid to the working partner. However, the penalty on account of shortage of stock was upheld. The Tribunal's decision was based on a detailed analysis of the facts, legal provisions, and precedents cited by both parties.

5. Conclusion:
Ultimately, the ITAT Ahmedabad partly allowed the assessee's appeal, highlighting the importance of accurate disclosure of income and the application of relevant legal principles in determining penalties under the Income-tax Act. The judgment provided a nuanced analysis of the issues raised and the applicable legal framework, ensuring a fair and reasoned decision in the matter.

This detailed analysis of the judgment before the Appellate Tribunal ITAT Ahmedabad provides a comprehensive overview of the issues involved, the arguments presented by both parties, the legal principles applied, and the final decision rendered by the Tribunal.

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