1999 (8) TMI 105 - AT - Income Tax

Summary

Issues Involved:

1. Levy of penalty under Section 271(1)(c) of the Income Tax Act.
2. Enhancement of penalty by the CIT(A) without issuing a show-cause notice.
3. Genuineness of the incentive commission claimed by the assessee.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):

The assessee, a private limited company, claimed a deduction of Rs. 1,02,473 towards sale incentive commission, which was disallowed by the revenue authorities and the Tribunal in the quantum proceedings. The disallowance was based on the finding that the claim was non-genuine. The AO initiated penalty proceedings under Section 271(1)(c) for the ingenuine claim and levied a penalty of Rs. 51,190. The CIT(A) confirmed this penalty and directed the AO to levy further penalty on the disallowance of Rs. 27,473.

The Tribunal noted that the penalty proceedings are distinct from the assessment proceedings and that the evidence in the assessment order may contain sufficient material to establish the charge of concealment or furnishing of inaccurate particulars of income. The Tribunal reappraised the evidence and found that the reasons given by the IAC under Section 144B for disallowing the claim were not material or relevant, particularly when the position of recipients as employees had been accepted and salary and bonus claimed duly allowed.

2. Enhancement of Penalty by the CIT(A) without Issuing a Show-Cause Notice:

The assessee argued that the enhancement of penalty by the CIT(A) was without jurisdiction as no show-cause notice was issued. The Tribunal agreed with this submission and held that the directions of the CIT(A) to levy penalty on the amount of Rs. 27,473 were without jurisdiction and were vacated.

3. Genuineness of the Incentive Commission Claimed by the Assessee:

The Tribunal examined the statements of the recipients of the incentive commission, who confirmed the receipt of the commission and provided details of the services rendered by them. The Tribunal found that the statements on oath of the employees were material evidence that was not given full weight during the assessment proceedings. The Tribunal noted that the commission was credited and not paid, but this did not lead to the conclusion that the liability to pay commission was not there, particularly when part of it was actually withdrawn by the employees and the commission received was taxed in their hands.

The Tribunal concluded that the claim of commission was quite natural and not fictitious, given the documentary evidence, confirmation of receipt of payment, and the standing of the employees. The Tribunal held that the present case could not be taken as a fit case for levy of penalty under Section 271(1)(c) and canceled the penalty levied.

Conclusion:

The Tribunal allowed the assessee's appeal, canceling the penalty levied and holding that the enhancement of penalty by the CIT(A) was without jurisdiction. The Tribunal found that the claim of incentive commission was genuine and not fictitious, based on the evidence provided.