1983 (5) TMI 66 - AT - Income Tax

Summary

Issues:
- Assessment of undisclosed income from commission agency business
- Imposition of penalties under section 271(1)(c) of the IT Act, 1961

Analysis:
1. The appeals involved an individual deriving income from business in biri leaves for the assessment years 1974-75 & 1975-76. The main issue was the treatment of commission earned by the assessee's son from agency business with parties from Cochin, which the Income Tax Officer (ITO) deemed as undisclosed income of the assessee.

2. The ITO disbelieved the explanation provided by the assessee regarding the commission agency business conducted by his son. The Assessing Officer (AO) added the commission amounts to the assessee's income from undisclosed sources for both years. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the additions, stating that the assessee retained general power of attorney and the commission received by the son remained in the books without significant withdrawals.

3. Subsequently, penalty proceedings were initiated under section 271(1)(c) of the IT Act, 1961. The ITO imposed penalties for both years, citing lack of agreement between the son and the outside parties, and the flow of funds from parties to the assessee before reaching the son. The CIT(A) confirmed the penalties, emphasizing the absence of written agreements and the son's activities being in the name of the father.

4. The assessee contended that the penalties were unjustified, arguing that the entire commission was recorded, and the son was gradually taking over the business. The assessee's representative highlighted confirmatory letters and the son's statement supporting his involvement in the agency business. The burden of proving benami transaction was discussed, emphasizing the lack of evidence from the department.

5. The Tribunal analyzed the evidence and explanations provided by the assessee. It noted that the son actively engaged in the agency business, despite the absence of a direct agreement with outside parties. The Tribunal found the explanation plausible and not deserving of penalties, citing precedents and the burden of proof under section 271(1)(c) of the Act.

6. The Tribunal distinguished a previous case relied upon by the department, emphasizing the absence of fraudulent intent or misleading actions by the assessee. Ultimately, considering all facts and circumstances, the Tribunal concluded that the penalties imposed were unwarranted and canceled them for both years, allowing the appeals in favor of the assessee.