2017 (8) TMI 483 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowing the commission payment challenging the capabilities of Ms. Divya Khanna to provide tips for purchasing shares etc. to assessee - subjective satisfaction - Held that - In the instant case, when the AO has not disputed the particulars of income furnished by the assessee nor he has disputed the amount on which commission is claimed to have been paid by the assessee, the disallowance on the ground of challenging the capabilities of Ms. Divya Khanna to provide tips for purchasing shares etc. is merely a subjective findings which are not sustainable. These days it is a matter of common knowledge that persons of 20 years of age are capable enough to advice and carry on such business even on their own. When the AO himself has allowed the commission of ₹ 5,00,000/- having been paid to Mr. Sanjeev Khurana, merely disallowing the commission payment on the basis of subjective satisfaction without calling upon the assessee as to what type of advice and know-how has been provided by Ms. Divya Khanna to earn the business income on which tax has already been paid, the penalty cannot be imposed nor does it amount to furnishing of inaccurate particulars. So, in the given circumstances, we are unable to hold that the assessee has furnished inaccurate particulars of income for making payment of ₹ 6,00,000/- to Ms. Divya Khanna so as to attract the penalty u/s 271(1)(c) of the Act, hence we hereby delete the penalty - Decided in favour of assessee.

Summary

Issues involved:
Penalty imposition under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2010-11 based on disallowance of professional and management expenses.

Detailed Analysis:

1. Initiation of Penalty Proceedings:
The Appellate Tribunal ITAT DELHI considered the appeal filed by M/s. Perfect Homfin Pvt. Ltd. against the penalty order passed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2010-11. The appeal sought to set aside the penalty imposed by the Commissioner of Income-tax (Appeals)-XVII, New Delhi. The grounds for appeal included errors in confirming the penalty, lack of justification for initiating penalty proceedings, rejection of bonafide explanations, and relevance of cited cases to the current scenario.

2. Assessment and Penalty Imposition:
During the assessment proceedings, it was observed that the assessee had debited an amount for professional and management charges paid to individuals. The Assessing Officer concluded that these expenses were booked to reduce income, leading to the initiation of penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income. Subsequently, a penalty of ?1,81,800 was imposed for debiting inadmissible expenses.

3. Judicial Review and Decision:
The assessee challenged the penalty order before the Tribunal after the appeal was dismissed by the CIT (A). The Tribunal examined the facts, arguments, and circumstances of the case. It was noted that the disallowance was based on subjective findings regarding the capabilities of an individual to provide tips for purchasing shares. The Tribunal referenced the decision of the Supreme Court in CIT vs. Reliance Petro Products Pvt. Ltd., highlighting that inaccurate particulars must be proven to attract penalty under section 271(1)(c).

4. Conclusion and Ruling:
Upon analysis, the Tribunal found that there were no inaccuracies in the particulars of income furnished by the assessee. As the AO did not dispute the details provided in the return or the commission paid, the disallowance based on subjective satisfaction was deemed unsustainable. The Tribunal concluded that the assessee did not furnish inaccurate particulars of income, leading to the deletion of the imposed penalty of ?1,81,800. The appeal filed by the assessee was allowed, and the penalty was revoked in the interest of equity and merits of the case.

In summary, the Tribunal's decision emphasized the importance of proving inaccurate particulars to impose penalties under tax laws, highlighting the need for concrete evidence rather than subjective assessments.