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2021 (6) TMI 578 - AT - Income TaxPenalty levied u/s 271(1)(c) - disallowance u/s 40 (a)(ia) only for lack of payment of TDS while the payment was bonafide - HELD THAT - As observed by us the commission expenses have been disallowed not for the reason that the same were either found to be bogus or unsubstantiated, but, on the ground that de hors deduction of tax at source, the same, were liable to be disallowed under Sec. 40(a)(ia) of the Act. In sum and substance, the genuineness and veracity of the commission expenses in question had not been doubted by the A.O. Though the failure on the part of the assessee to deduct tax at source which it was obligated to deduct rendered the amount in question liable for disallowance as an expenditure, but, we are unable to concur with the view taken by the lower authorities that a disallowance for such technical and venial infraction of a statutory provision would justify saddling the assessee with penalty under Sec. 271(1)(c) of the Act. In judgment of Hindustan Steel Limited Vs. State of Orissa 1969 (8) TMI 31 - SUPREME COURT as observed that imposition of penalty under Sec. 271(1)(c) is nothing short of a quasi criminal proceedings. In the backdrop of our aforesaid deliberations, we are of a strong conviction that no penalty under Sec. 271(1)(c) for a simpliciter disallowance under Sec.40(a)(ia) could have been validly imposed by the A.O. Be that as it may, not finding favour with the view taken by the lower authorities, we, herein, quash the penalty imposed by the A.O under Sec. 271(1)(c) of the Act. - Decided in favour of assessee.
Issues:
1. Penalty under Sec. 271(1)(c) for disallowance of commission expenses. 2. Validity of jurisdiction for imposing penalty. Analysis: Issue 1: Penalty under Sec. 271(1)(c) for disallowance of commission expenses: The appeal concerned the imposition of a penalty under Sec. 271(1)(c) of the Income Tax Act, 1961, on the assessee for disallowance of commission expenses under Sec. 40(a)(ia). The Assessing Officer (A.O) disallowed the deduction of commission expenses of &8377; 4,40,000 due to the failure of the assessee to deduct tax at source. The A.O initiated penalty proceedings under Sec. 271(1)(c) during the assessment. The CIT(A) upheld the penalty imposed by the A.O, leading the assessee to appeal the decision. The authorized representative for the assessee argued that the penalty was unjustified as the commission expenses were genuine, and the disallowance was solely due to the failure to deduct tax at source. The representative cited a tribunal case to support the argument that a penalty should not be imposed based on a mere disallowance under Sec. 40(a)(ia). Additionally, it was contended that the A.O's notice for penalty lacked specificity, rendering it invalid. Upon review, the Tribunal found that the disallowance was a technical violation rather than a deliberate act of concealment or furnishing inaccurate particulars of income. Citing a Supreme Court judgment, the Tribunal emphasized that penalty under Sec. 271(1)(c) is akin to quasi-criminal proceedings. Consequently, the Tribunal concluded that imposing a penalty for a technical violation like the one in question was unwarranted. Therefore, the penalty of &8377; 1,36,000 imposed by the A.O under Sec. 271(1)(c) was quashed, and the appeal was allowed. Issue 2: Validity of jurisdiction for imposing penalty: As the Tribunal quashed the penalty based on the lack of justification for the imposition, it refrained from delving into the validity of the jurisdiction assumed by the A.O for imposing the penalty under Sec. 271(1)(c), as raised by the authorized representative. The Tribunal disposed of the grounds related to the jurisdiction issue in line with its decision to quash the penalty. The additional grounds of appeal were also disposed of accordingly. In conclusion, the appeal of the assessee was allowed based on the Tribunal's observations regarding the unjustified imposition of the penalty under Sec. 271(1)(c) for the disallowance of commission expenses. The order was pronounced in the open court on 11.06.2021.
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