2008 (1) TMI 472 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - For Concealment Of Income - payment of commission - HELD THAT - In our considered view the assessee had offered an explanation which on the face of it appears to be bona fide inasmuch as the addresses of the persons given by the assessee were found correct and there is no finding by the Assessing Officer that those are not the addresses of artisans claimed or that those persons did not receive any commission from the assessee. Payment of commission to villagers/artisans/uneducated persons through bearer cheques is a common phenomenon. Unless it is found that money of bearer cheques did not really go to the payee it cannot be presumed that payment as claimed was actually not so made. It is clear that no penalty for concealment of income can be levied by merely disbelieving on explanation by the assessee. There has to be some positive material collected and referred by the Assessing Officer which would show that either the assessee has concealed the particulars of income or furnished inaccurate particulars. There has to be something for comparison to prove that what was claimed by the assessee was false or inaccurate. Mere disbelieving on the claim made by the assessee is not sufficient. The Assessing Officer could have in the present case enquired and shown that the addresses of the artisans are not correct or they have not received the payment or that they have denied to have rendered any services or money on bearer cheques have not gone to the artisans/mechanics or has been received back by the assessee or things similar to this highlighting the inaccuracy in the story or explanation furnished by the assessee. In the absence of such finding and material relating to these it is not possible to hold that the assessee had concealed particulars of his income by way of claiming expenses on commission or has filed inaccurate particulars relating thereto. As a result penalty so confirmed by the learned CIT(A) cannot be upheld. It is accordingly cancelled. In the result the appeal filed by the assessee is allowed.

Issues Involved:
1. Levy of penalty for concealment of income under Section 271(1)(c).
2. Justification and substantiation of commission expenses.
3. Condonation of delay in filing the appeal.

Detailed Analysis:

1. Levy of Penalty for Concealment of Income Under Section 271(1)(c):
The core issue in this case is whether the penalty for concealment of income under Section 271(1)(c) of the Income Tax Act was justified. The assessee, a manufacturer of industrial swing machines, was initially assessed on an income of Rs. 5,94,864, which later increased to Rs. 13,28,076 after scrutiny. The primary addition was Rs. 7,22,740, claimed as commission paid to technically skilled workers. The Assessing Officer (AO) found discrepancies in the addresses and the inability to contact the recipients, leading to a show-cause notice. The assessee surrendered the commission amount with a request to avoid penal action. Despite this, the AO initiated penalty proceedings, citing the inability to substantiate the expenditure.

2. Justification and Substantiation of Commission Expenses:
During the assessment proceedings, the AO required the assessee to justify the commission expenses. The assessee provided a list of recipients, but the AO's inspector could not verify their presence. The AO inferred the payments were not genuine, especially since some cheques were withdrawn in cash without evidence of services rendered. The CIT(A) upheld the penalty, stating the expenditure was non-genuine/bogus and that the assessee furnished inaccurate particulars. The assessee argued that the artisans were uneducated and feared coming to the income-tax office, and that commission payments were a regular feature in their business, accepted in previous and subsequent years.

3. Condonation of Delay in Filing the Appeal:
The appeal was filed late by 222 days. The assessee submitted an affidavit explaining that the delay was due to the misplacement of appeal papers by a senior counsel. The tribunal accepted this explanation, condoning the delay and admitting the appeal.

Tribunal's Findings:
The tribunal noted that the payment of commission resulted in increased sales and that such payments were a regular feature in the assessee's business, accepted in previous and subsequent years. The tribunal found no material evidence from the revenue to prove the commission payments were bogus. The AO's inability to produce the artisans was not sufficient grounds for penalty under Section 271(1)(c). The tribunal emphasized that for penalty under Explanation 1(B) of Section 271(1)(c), the AO must prove that the explanation was not bona fide and that all material facts were not disclosed. The tribunal concluded that the assessee's explanation was prima facie bona fide, supported by regular commission payments and correct addresses. The AO failed to provide positive material evidence to prove the claim was false or inaccurate.

Conclusion:
The tribunal held that mere disallowance of expenditure does not justify penalty for concealment of income. The penalty was cancelled, and the appeal was allowed in favor of the assessee.

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