2016 (5) TMI 685 - AT - Income Tax

Penalty u/s 271(1)(c) - commission income receipt - Held that - No penalty is leviable in the instant case keeping in view peculiar facts and circumstances of the case as set out above, as there is no deliberate attempt or positive act on the part of the assessee firm to conceal income or furnish in-accurate particulars of income. The bona-fide claim was made by the assessee firm based on the terms and condition of the agency agreement and the method of accounting was consistently followed based on the bona-fide belief that the commission income will become due to the assessee firm and right to receive will be vested in favour of the assessee firm only when the foreign principals have got their payments from Indian Buyers for products supplied by the foreign principals to the Indian Buyers and any deductions by the Indian Buyers in the payments due to the foreign principals will lead simultaneously deduction in the commission income of the assessee firm as per terms of agency agreement, But the said explanation did not found favour with the Revenue as in their view , the commission has already accrued to the assessee in terms of provisions of the Act and the same is exigible to tax . Thus, the assessee came out with an bona-fide explanation for substantiating the claim made by it in the return of income filed with the Revenue which was not accepted by the Revenue but it did not made the assessee firm liable for penalty u/s 271(1)(c) of the Act. There is a difference of opinion between the assessee firm and A.O. and the claim of the assessee firm was not accepted by the A.O. Mere non-acceptance of the bona-fide claim of the tax-payer by the Revenue does not call for imposition of penalty within the ambit of provisions of Section 271(1)(c) of the Act , more-so the assessee firm came forward with a bona-fide explanation to substantiate its claim and hence the case of the assessee is not hit by explanation 1 to Section 271(1)(c) of the Act. - Decided in favour of assessee

Issues Involved:
1. Whether the CIT(A) was correct in holding that the penalty order passed by the AO under Section 271(1)(c) of the Income Tax Act, 1961 was incorrect.
2. Whether the assessee had filed inaccurate particulars during the assessment proceedings.
3. Whether the income had accrued to the assessee in the relevant assessment year and was not declared, amounting to willful concealment of income.
4. Whether the penalty levied by the AO should be restored and the order of the CIT(A) set aside.

Issue-wise Detailed Analysis:

1. Penalty Order under Section 271(1)(c):
The Revenue appealed against the CIT(A)'s order, which had canceled the penalty imposed by the AO under Section 271(1)(c) for the assessment year 2006-07. The AO had levied a penalty of ?54,51,920/- on the grounds that the assessee firm had shown commission income as an advance in the balance sheet instead of declaring it as income, thereby concealing income and furnishing inaccurate particulars. The CIT(A) found that the AO relied solely on the quantum assessment findings without establishing that there was deliberate concealment or furnishing of inaccurate particulars by the assessee firm. The CIT(A) observed that the additions were due to differences in opinion and perception on the same issue and that the assessee had disclosed the receipts as advance in the year and treated them as income in the subsequent year, following a consistent method of accounting. The CIT(A) held that penalty cannot be levied on mere rejection of an explanation furnished by the assessee firm, which was found to be bona fide.

2. Filing of Inaccurate Particulars:
The AO concluded that the assessee firm had filed inaccurate particulars by not declaring the commission income that had accrued to it. The AO's analysis of the agency agreements showed that the commission was due and payable after the foreign principals received the full sale price for the products sold. The AO held that the assessee firm had completed its assignments as per the agreements, and the income had accrued, thus treating the advance commission as business income. The CIT(A), however, found that the assessee firm had disclosed all relevant information and followed a consistent method of accounting based on a bona fide belief. The CIT(A) noted that the assessee had offered the said amount as income in the subsequent year and paid due taxes, indicating no intent to conceal income or file inaccurate particulars.

3. Accrual of Income and Willful Concealment:
The AO argued that the income had accrued to the assessee in the relevant assessment year itself and that the assessee's failure to declare it amounted to willful concealment. The AO relied on the Supreme Court's judgment in UOI v. Dharmendra Textile Processors to assert that the assessee had deliberately failed to disclose the correct particulars of its income. The CIT(A), however, observed that the assessee's method of accounting was based on a bona fide belief and was consistently followed. The CIT(A) found no material evidence from the AO to justify that there was willful concealment or furnishing of inaccurate particulars. The CIT(A) noted that the assessee had disclosed the income in the subsequent year and paid taxes, making the tax effect revenue neutral.

4. Restoration of Penalty by AO:
The Revenue sought to restore the penalty levied by the AO and set aside the CIT(A)'s order. The CIT(A) had canceled the penalty, finding that the AO had not established that the explanation given by the assessee was not bona fide. The CIT(A) noted that the penalty proceedings for the assessment year 2007-08 were dropped by the AO, and no penalty was levied for the assessment year 2005-06, despite the assessee following the same method of accounting. The Tribunal upheld the CIT(A)'s order, agreeing that the assessee had provided a bona fide explanation and that there was no deliberate attempt to conceal income or furnish inaccurate particulars. The Tribunal found that the CIT(A)'s order was well-reasoned and detailed, confirming that the penalty of ?54,51,920/- was not sustainable in law.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order that canceled the penalty levied by the AO under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal found that the assessee had followed a consistent method of accounting based on a bona fide belief, disclosed all relevant information, and paid due taxes in the subsequent year, making the tax effect revenue neutral. The Tribunal held that there was no deliberate concealment of income or furnishing of inaccurate particulars by the assessee firm, and the penalty was not justified.

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