2023 (1) TMI 892 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of commission expenses - HELD THAT - AO had merely proceeded on the basis of confirmations without making any inquiry about the nature of business of the assessee and the services rendered by the respective parties to justify the payment of commission. He only proceeded on the premises of genuineness of the parties. Ld. CIT(A) after giving due notice seeking explanation from the assessee as to what were the sort of services rendered to justify payment of commissions proceeded to enhance the addition. As inspite of several effective opportunities no evidence was led by the assessee, enhancement was made. The findings arrived by Ld. CIT(A) require no interference. The grounds raised have no substance, the same is dismissed. As in spite of opportunity assessee had failed to substantiate the commission expenses, the findings of Ld. CIT(A) levying penalty on the ground of inaccurate claim requires no interference, so ground also stands dismissed.

Summary

Issues:
1. Disallowance of commission expenses by the Assessing Officer.
2. Enhancement of income by the Commissioner of Income Tax (Appeals).
3. Penalty proceedings initiated under section 271(1)(c) of the Income Tax Act.

Issue 1: Disallowance of Commission Expenses
The Assessee filed a return of income declaring total income, which was selected for scrutiny. The Assessing Officer disallowed commission expenses paid to 8 parties, leading to an addition in the total income. The Commissioner of Income Tax (Appeals) called for a remand report and provided opportunities for the Assessee to explain and provide evidence regarding the services rendered by the parties to justify the commission payments. However, despite multiple opportunities, no evidence was presented by the Assessee. Consequently, the Commissioner enhanced the income by the disallowed amount. The Assessee raised various grounds challenging the decision, but as no evidence was provided to substantiate the expenses, the appeal was dismissed.

Issue 2: Enhancement of Income by the Commissioner of Income Tax (Appeals)
The Commissioner of Income Tax (Appeals) enhanced the addition made by the Assessing Officer regarding the commission expenses. The Assessee contended that proper opportunities were not provided and that the enhancement was erroneous in fact and law. However, the Commissioner, after seeking explanations and providing multiple chances for the Assessee to present evidence, concluded that the addition was justified due to the lack of substantiation. The grounds raised by the Assessee lacked substance, leading to the dismissal of the appeal.

Issue 3: Penalty Proceedings under Section 271(1)(c)
The Commissioner of Income Tax (Appeals) initiated penalty proceedings under section 271(1)(c) of the Income Tax Act for the inaccurate claim of deduction for commission expenses. A penalty was imposed on the Assessee. The Assessee challenged this penalty, alleging errors in law and fact and lack of proper opportunities provided. However, as the Assessee failed to substantiate the expenses despite opportunities to do so, the findings of the Commissioner regarding the penalty were upheld, resulting in the dismissal of the appeal against the penalty.

In conclusion, the appeals filed by the Assessee against the disallowance of commission expenses, enhancement of income, and imposition of a penalty were dismissed due to the lack of evidence provided to justify the expenses and the inaccurate claims made. The decisions of the tax authorities were upheld based on the failure of the Assessee to substantiate the transactions and expenses in question.