2016 (9) TMI 1216 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee claimed remuneration to partners - assessee has contended that the case of the assessee was audited under section 44AB of the Act, however, the learned Auditor did not disallow the excess claim of the remuneration - Held that - We find that the assessee has offered explanation in respect of the facts material to the computation of income and which has not been found to be false by the Assessing Officer. The assessee has substantiated the explanation and proved that the explanation filed is bonafide and all the facts and material related to computation of total income has been disclosed by the assessee. In view of above, in our considered opinion, in the case of the assessee, the Explanation-I to the section 271(1)(c) of the Act is not attracted. Though the Assessing Officer has not allowed the claim of the assessee of the excess remuneration, but all the documents in respect of the claim were provided by the assessee in assessment proceedings and in the penalty proceedings the assessee explained his bonafide in claiming the remuneration. Before us also, learned Authorised Representative of the assessee has explained that the learned Auditor did not point out in audit reports under section 44AB of the Act allowability of the remuneration to partners to the extent of ₹ 50,000/- only and, because of which, the assessee has paid tax on the remuneration paid to the partners and the disallowance has also been sustained resulting into double taxation on the remuneration paid to the partners. This explains the bonafide of the assessee in claiming the remuneration to the partners, which is found to be excess by the Assessing Officer. Where the assessee has furnished all the details of its expenditure as well as income, in its return, which themselves were not found to be inaccurate nor could be viewed as concealment of income on its part and merely because the assessee had claimed the expenditure, which has not been accepted by the Revenue, cannot lead to the levy penalty under section 271(1)(c) of the Act.See Reliance Petroproducts Private Limited 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee.

Issues Involved:
1. Legality of penalty proceedings initiated under section 271(1)(c) of the Income-tax Act, 1961.
2. Assessment of remuneration paid to partners and its disallowance.
3. Determination of concealment of income or furnishing inaccurate particulars.
4. Examination of mens rea or conscious concealment.
5. Evaluation of excessive, harsh, and arbitrary penalty imposed.
6. Consideration of double taxation and bona fide mistakes.

Issue-wise Detailed Analysis:

1. Legality of Penalty Proceedings Initiated under Section 271(1)(c):
The assessee challenged the penalty proceedings initiated under section 271(1)(c), arguing that the remuneration paid to partners was as per the Partnership Deed. The Commissioner of Income Tax (Appeals) upheld the penalty, which was levied by the Assessing Officer, who disallowed the excess remuneration of ?1,90,000/-.

2. Assessment of Remuneration Paid to Partners and Its Disallowance:
The assessee firm claimed remuneration to partners of ?2,40,000/-, which was disallowed by the Assessing Officer to the extent of ?1,90,000/- due to a business loss. The allowable remuneration under section 40(b)(v) was only ?50,000/-. The Commissioner of Income Tax (Appeals) confirmed this disallowance, leading to the initiation of penalty proceedings.

3. Determination of Concealment of Income or Furnishing Inaccurate Particulars:
The assessee contended that there was no concealment of income or furnishing of inaccurate particulars, as the remuneration was claimed based on the Partnership Deed and previous years' practice. The Tribunal noted that the assessee had disclosed all relevant facts and that the claim was not found to be false by the Assessing Officer.

4. Examination of Mens Rea or Conscious Concealment:
The assessee argued that there was no fraudulent intention or willful act in claiming the excess remuneration. The Tribunal found that the explanation provided by the assessee was bona fide and that all facts and materials related to the computation of income were disclosed.

5. Evaluation of Excessive, Harsh, and Arbitrary Penalty Imposed:
The penalty imposed at 150% of the tax sought to be evaded was challenged as excessive and arbitrary. The Tribunal, referencing the Supreme Court's decision in CIT vs. Reliance Petroproducts (P) Ltd., held that merely making an incorrect claim does not amount to furnishing inaccurate particulars or concealment of income.

6. Consideration of Double Taxation and Bona Fide Mistakes:
The assessee highlighted that the partners had already paid tax on the remuneration, leading to double taxation. The Tribunal acknowledged this and noted that the failure to disallow the excess claim by the Auditor in the tax audit report was a bona fide mistake.

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not justified as the assessee had provided all necessary details and the claim was not found to be false. The appeal was allowed, and the penalty was deleted, following the principles laid down by the Supreme Court in the Reliance Petroproducts case. The decision was pronounced on 19th August 2016.

← Previous Next →