2019 (2) TMI 114 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - disallowance of commission /brokerage on purchases - Held that - The assessee has been paying brokerage/ commission in the earlier year also and in order to prove the claim, the parties have directly sent confirmations, their income tax returns, bank statement etc. to show that these commissions have been paid to them on account of purchases. Thus, the primary onus cast upon the assessee, stood discharged and even if these persons could not be produced or did not appear inspite of summon u/s 131, that does not mean the material and evidence filed by the assessee was incorrect or has been found to be false. Assessee was able to substantiate its claim though such a claim did not found favour only for the reason that these parties did not appear. There is no other material or evidence on record to show that such payment of brokerage / commission is bogus or is coloured transaction - no penalty can be levied for furnishing of inaccurate particulars of income and same is directed to be deleted - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) for disallowance of commission/brokerage on purchases.

Analysis:
The appeal was filed against the penalty imposed by the Ld. CIT(A) for the assessment year 2011-12. The assessee, engaged in garment manufacturing, claimed brokerage/commission on purchases amounting to ?10,47,592. The Assessing Officer (AO) disallowed the entire amount, citing failure to produce parties despite submission of confirmation letters, IT returns, and bank account details. The disallowance was confirmed up to the Tribunal level, leading to a penalty of ?3,09,000 for furnishing inaccurate income particulars.

During the quantum proceedings, the disallowance was based on the inability to prove the genuineness of brokerage/commission payments, as parties could not be produced for deposition. However, this finding alone was insufficient to establish guilt under section 271(1)(c). The assessee had discharged the primary onus by providing confirmations, tax returns, and bank statements from the parties, even though they did not appear in response to summons under section 131. Lack of appearance did not render the evidence false or incorrect. The absence of these parties did not prove the payments to be bogus or fraudulent, as the assessee substantiated the claim with valid documentation. Therefore, in the absence of any other incriminating evidence, the penalty for furnishing inaccurate particulars of income was unwarranted and was directed to be deleted.

Ultimately, the Tribunal allowed the assessee's appeal, emphasizing that the evidence provided by the assessee was sufficient to support the claim of commission/brokerage payments. The judgment highlighted the importance of substantiating claims with documentation, even if parties fail to appear, to avoid penalties under section 271(1)(c).