2016 (11) TMI 1143 - AT - Income Tax

Penalty levied u/s.271(1)(c) - disallowing sub-brokerage payment - Held that - Mere suspicions, surmises and no evidence should not form basis for adjudicating any matter where strong evidence against the assessee is not available with the Revenue. In the instant case, the assessee has been able to substantiate its transactions with the payee parties and has also provided confirmations. The Revenue, on the other hand, has no evidence to substantiate its claim as regards the alleged dubiousness of the appellant s sub-brokerage expenses. In view of the above discussion, we do not find any merit for the penalty so imposed by AO.- Decided against revenue

Summary

Issues:
Appeal against penalty imposition under section 271(1)(c) for disallowance of sub-brokerage payment.

Analysis:
The appeal was filed against the penalty imposed by the CIT(A) for disallowing sub-brokerage payment made by the assessee. The assessee contended that there was no concealment of income or furnishing of inaccurate particulars to invoke penal provisions under section 271(1)(c). The assessee provided relevant documents and details to substantiate the genuineness of transactions with sub-brokers. The AO disallowed the sub-brokerage expense, but no penalty was levied for non-acceptance of short term capital gain. The ITAT had previously set aside the matter to the AO for further examination, indicating insufficient evidence to confirm the disallowance. The assessee argued that the AO erred in disallowing the expense without considering various documents submitted during assessment proceedings, which supported the genuineness of the transactions.

The Revenue contended that the genuineness of the payment to the sub-broker was not substantiated by the assessee, justifying the penalty imposition by the AO. However, upon careful consideration, the ITAT found that documents established the identity of brokers and receipt of sub-brokerage, with parties confirming the provision of services. The ITAT observed that the AO did not examine relevant bank accounts of payee parties before disallowing the expense. The ITAT's order emphasized the need for a fresh examination by the AO, which was disregarded by the AO in the penalty imposition.

Regarding the penalty merit, it was noted that the sub-brokerage recipients were not associated with the assessee, ruling out collusion for tax evasion. Payments were made through normal banking channels, supported by bank statements submitted during assessment proceedings. The absence of evidence suggesting cash returns from payee parties made the penalty imposition unjust. The ITAT referenced a Supreme Court judgment emphasizing that decisions should not be based on suspicions or conjectures without strong evidence. As the assessee substantiated transactions and the Revenue lacked evidence of dubiousness in sub-brokerage expenses, the penalty was deemed unwarranted. Consequently, the appeal of the assessee was allowed, and the penalty was set aside.

In conclusion, the ITAT ruled in favor of the assessee, highlighting the lack of merit for the penalty imposed by the AO. The judgment emphasized the importance of substantial evidence and proper examination of facts before penal provisions are invoked under section 271(1)(c) of the Income Tax Act.