2019 (11) TMI 394 - AT - Income Tax

Penalty u/s 271(1)(c) - as alleged no satisfaction was recorded with reference to concealment of income or furnishing inaccurate particulars of income - HELD THAT - Payment was made through account payee cheques and subjected to TDS. The assessee also explained that these persons have offered the commission income to tax in their returns of income. The assessee also produced the confirmations of these persons along with the returns of income before the AO in the penalty proceedings. Once the assessee has brought all relevant evidences on record to show that the commission paid by the assessee which was surrendered as bogus was not actually bogus but a genuine payment, then the AO instead of going by the surrender made by the assessee ought to have conducted an enquiry to verify the correctness of the documentary evidences filed by the assessee and genuineness of the claim. Since the assessee surrendered this amount and paid the tax, therefore, the explanation of the assessee is relevant only to the limited extent of considering the same as reasonable and bonafide explanation under section 273B - Even otherwise, when the surrender is not based on any incriminating material but it is only based on the statement recorded during the survey, therefore, the evidentiary value of the statement recorded under section 133A in the absence of corroborating evidence cannot be a conclusive basis for holding the assessee liable for the penalty proceedings under section 271(1)(c) of the IT Act. Once the assessee has brought all relevant documentary evidences in support of the genuineness of the claim, then in the absence of any contrary finding by the AO, the said explanation would be regarded as bonafide and reasonable explanation under section 273B of the IT Act. Consequently, no penalty under section 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty order under section 271(1)(c) of the IT Act for AY 2014-15.

Analysis:
1. The assessee, a private limited company engaged in manufacturing and trading of jewelry, filed its return for AY 2014-15 declaring income of ?1,00,36,810. Following a survey under section 133A, the Director of the company surrendered ?47,18,937 due to a claimed bogus commission payment. The AO completed assessment under section 143(3) determining total income at ?1,50,18,690, including the surrendered amount. Subsequently, penalty proceedings were initiated under section 271(1)(c) and a penalty of ?16,00,000 was levied, challenged unsuccessfully before the CIT (A).

2. The assessee contended that the surrender was made under pressure and coercion, without any incriminating material, to avoid litigation and buy peace. The payment was genuine, made through TDS, and recipients declared the income without claiming deductions. The assessee submitted relevant documents and affidavits to prove the genuineness of the commission payments. The AO failed to conduct a separate enquiry during penalty proceedings, relying solely on the surrender made during assessment.

3. The Department argued that the assessee admitted the bogus claim during the survey, surrendering the amount, and offering it for tax. However, the Tribunal noted that no incriminating material was found during the survey specifically related to the bogus commission claim. The AO's general statement of finding incriminating documents was not sufficient to justify the penalty. The assessee's explanation, supported by documentary evidence, showed the commission payments were genuine, and the surrender was to avoid prolonged litigation.

4. The Tribunal held that the explanation provided by the assessee, supported by documentary evidence, was reasonable and bonafide. Since the surrender was not based on incriminating material and the genuineness of the claim was substantiated, no penalty under section 271(1)(c) was justified. Consequently, the penalty levied was deleted, and the appeal of the assessee was allowed.