2022 (4) TMI 1010 - AT - Income Tax

Penalty u/s 271(1)(c) - AO failed to establish exact services provided by commission agent and claim of expenses was in connection with the business - HELD THAT - It is settled law that penalty proceedings u/s 271(1)(c) of the Act is separate and independent. We are conscious of facts that in the quantum assessment, the addition has been upheld up to the stage of Tribunal. Facts remained the same that initial basis of disallowance of commissions payment is that it was on higher side comparative to the earlier year. Before the AO the assessee filed details of the commission s recipient, their PAN and the details of TDS deducted on payments of such commissions. No separate and independent investigation was carried out by the AO. So far as objections ld. DR for revenue that assessee failed to prove the services rendered by commission recipient, in our view those facts may be relevant for allowing/disallowing the commission payment, however, same is not relevant as far as levy of penalty under section 271(1)(c) is concerned. As in CIT vs. Reliance Petroproducts (P) Ltd. 2010 (3) TMI 80 - SUPREME COURT held that mere filing in incorrect claim which is not acceptable to AO would not lead to levy of penalty. Thus, in view of the above discussions, the grounds of appeal raised by the assessee is allowed.

Summary

Issues:
1. Disallowance of commission expenses and levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2004-05.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals-1) for disallowing commission expenses. The Assessing Officer disallowed commission expenses of ?7,34,054, leading to a penalty of ?2,36,342 under section 271(1)(c) of the Act.

2. The Assessing Officer's penalty order was based on the claim that the assessee furnished inaccurate particulars of income by willfully attempting to evade tax. The Assessing Officer held that the assessee failed to establish the exact services provided by the commission agent, justifying the penalty.

3. The assessee contended that the disallowance was unjustified as all details were provided during assessment proceedings. The assessee argued that the commission payments were genuine and TDS was deducted, citing a significant rise in sales and turnover compared to the previous year.

4. The Commissioner of Income Tax (Appeals) upheld the penalty, stating that the assessee failed to prove the services rendered by the commission recipient. The assessee's reliance on case laws was deemed inapplicable to the present case.

5. During the Tribunal hearing, the assessee emphasized that no evidence disproving the genuineness of commission payments was presented. The Tribunal acknowledged that the initial disallowance was solely based on the increase in commission payments without independent investigation by the Assessing Officer.

6. The Tribunal ruled in favor of the assessee, highlighting that the mere disallowance of expenses does not warrant the levy of a penalty under section 271(1)(c) of the Act. Citing the Supreme Court's decision in CIT vs. Reliance Petroproducts (P) Ltd., the Tribunal concluded that the penalty was not justified in this case.

7. The Tribunal noted that while the quantum assessment upheld the addition of commission expenses, the penalty proceedings required separate consideration. The Tribunal emphasized that the failure to prove services rendered by the commission recipient was not relevant to the imposition of the penalty.

8. Ultimately, the Tribunal allowed the appeal of the assessee, emphasizing that the disallowance of expenses based on a mere increase in commission payments did not warrant the imposition of a penalty under section 271(1)(c) of the Income Tax Act.

This detailed analysis covers the issues of disallowance of commission expenses and the levy of penalty under section 271(1)(c) for the Assessment Year 2004-05 as addressed in the judgment by the Appellate Tribunal ITAT SURAT.