2016 (11) TMI 1052 - AT - Income Tax

Penalty u/s 271(1)(c) - income from other sources - as per assessee reimbursements do not constitute the income of the assessee - Held that - It is an undisputed fact that the assessee received the said amount of ₹ 14 lakhs from M/s. Deesha and the same was spent towards painting of the entire building spending a sum of ₹ 10,58,629/-. Some of the amount was spent for erecting the scaffolding for bearing the display boards. It is the claim of the assessee that these amounts constitute reimbursements by M/s. Deesha and reimbursements are outside the scope of chargeability to tax. These arguments were dismissed by the Tribunal in the quantum proceedings and the Tribunal held that the assessee resorted to create agreement for self-serving and the assessee arrange itself affairs to not to bring the said receipts of ₹ 14 lakhs to tax. As noticed by the Tribunal in its order unable to understand as to how ₹ 1 lakh was received towards bimonthly rent when the BMC fees itself is exceeded the sum of ₹ 3.75 lakhs (rounded off). Further unable to appreciate the fact of M/s. Deesha reimbursed the expenditure on the painting of the entire building amounting to more than ₹ 10.5 lakhs when the scaffolding for display of the advertisement is only in the area of 80 X 120 sq ft. I am absolutely convinced on the fact that the affairs are not well so far as the accounting of the amount of ₹ 14 lakhs is concerned. Assessee is not forthcoming with all the facts in this regard. Therefore, it is of the opinion that the second agreement constitutes self-serving document . Thus the order of the CIT (A) in confirming the penalty relatable to ₹ 14 lakhs is fair and reasonable and it does not call for any interference. - Decided against assessee

Summary

Issues:
Penalty under section 271(1)(c) of the Act for concealment of income and particulars; Bonafide claim of the appellant; Reimbursements not constituting income of the assessee; Validity of agreements for reimbursement; Application of principle of mutuality for non-taxability of certain amounts.

Analysis:
1. The appeal was against the CIT (A)'s order confirming penalty under section 271(1)(c) of the Act. The appellant claimed that the claim was bonafide and not for defrauding revenue. However, the AO found discrepancies in the agreements related to the receipt of ?14 lakhs from M/s. Deesha. The AO concluded that the agreements were self-serving documents to avoid disclosing income for taxation purposes.

2. The CIT (A) upheld the penalty, emphasizing that M/s. Deesha had no reason to bear the expenses for painting the entire building when their lease period was only for 2 months. The Tribunal also dismissed the appellant's alternative contentions and confirmed the penalty related to the ?14 lakhs. The penalty for the ?1 lakh, already disclosed by the assessee, was deleted.

3. During the Tribunal proceedings, the appellant argued that the ?14 lakhs received were reimbursements and not taxable. The appellant claimed that the amounts received were for maintenance purposes and fell under the principle of mutuality. However, the Tribunal found the appellant's explanations unsustainable and noted discrepancies in the documents and conduct of the assessee.

4. The Tribunal observed that the appellant failed to justify why the entire building was painted at M/s. Deesha's expense without declaring it for tax. The Tribunal concluded that the agreements were self-serving documents, reflecting poorly on the appellant's accounting practices. The Tribunal referenced relevant case laws supporting the imposition of penalties for deliberate deception and loss of revenue.

5. Ultimately, the Tribunal upheld the CIT (A)'s decision to confirm the penalty related to the ?14 lakhs, deeming it fair and reasonable. The Tribunal dismissed the appellant's grounds and upheld the penalty imposition.

In conclusion, the Tribunal dismissed the appeal, affirming the penalty under section 271(1)(c) of the Act for the concealment of income and particulars, emphasizing discrepancies in agreements and justifications provided by the appellant.