1996 (5) TMI 102 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the IT Act, 1961, for the assessment years 1981-82 and 1982-83.
2. Alleged concealment of income by the assessee through commission payments to M/s Indira Chemical Agencies (P) Ltd.
3. Genuineness of the commission payments and supporting evidence.
4. Examination of the agreement and statements by the managing partners.
5. Justification for the levy of penalty under Section 271(1)(c).

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the IT Act, 1961:
The assessee filed returns for the assessment years 1981-82 and 1982-83, declaring incomes of Rs. 1,96,200 and Rs. 2,80,470, respectively. The assessments were completed on higher incomes, and the AO noticed discrepancies in the claimed commission payments to M/s Indira Chemical Agencies (P) Ltd. The AO concluded that the assessee had deliberately diverted 50% of its income through false commission payments, leading to the levy of penalties of Rs. 50,120 and Rs. 73,765 for the respective years under Section 271(1)(c) for concealment of income.

2. Alleged Concealment of Income:
The AO found that the commission payments claimed by the assessee were unsupported by entries in the books of accounts and were only mentioned in the statements accompanying the returns. The AO observed erasures and alterations in the ledger entries and concluded that the payments purportedly made to M/s Indira Chemical Agencies (P) Ltd. were actually made to the partners of the assessee firm. Despite several opportunities, the assessee could not produce the original agreement or evidence of services rendered by M/s Indira Chemical Agencies (P) Ltd.

3. Genuineness of the Commission Payments:
The assessee contended that the payments were genuine and supported by an agreement dated 15th March 1979, which stipulated a 50% commission payment to M/s Indira Chemical Agencies (P) Ltd. for transferring the agency of Atul Products. The assessee produced a letter from the Managing Director of M/s Indira Chemical Agencies (P) Ltd. acknowledging receipt of the commission. However, the AO and the first appellate authority found the evidence insufficient and upheld the disallowance of the commission payments.

4. Examination of the Agreement and Statements:
The agreement between the parties was disputed, and the assessee produced a xerox copy of the agreement before the Tribunal. The Departmental Representative argued that the agreement was not produced before the AO and relied on sworn statements that contradicted the terms of the agreement. The Tribunal noted discrepancies in the statements and the lack of examination of key witnesses, such as the Managing Director of M/s Indira Chemical Agencies (P) Ltd., which weakened the Department's case.

5. Justification for the Levy of Penalty:
The Tribunal found that the Department failed to prove beyond reasonable doubt that the assessee had concealed its income. The Tribunal observed that the documentary evidence, including the agreement and balance sheets, supported the assessee's claim of genuine commission payments. The Tribunal emphasized that while an addition could be made if the source was not satisfactorily explained, the imposition of penalty under Section 271(1)(c) required clear evidence of concealment, which was lacking in this case.

Conclusion:
The Tribunal concluded that there was no justification for the levy of penalty under Section 271(1)(c) as the Department could not conclusively prove the concealment of income. The appeals filed by the assessee were allowed, and the penalties levied were canceled.