2012 (9) TMI 795 - AT - Income Tax

Penalty for Concealment of Income Deleted: Tribunal Deems Assessing Officer's Reliance Insufficient

The penalty imposed under Section 271(1)(c) for the assessment year 2005-2006 based on disallowed commission payments was contested. The Tribunal found ... Penalty u/s 271(1)(c) - assessee having income from commission/service charges from direct marketing/selling agency of ICICI Bank Ltd. on car loan sanctioned through it - dis-allowance of commission paid to sub brokers on ground of non-confirmation and encashment by assessee of cheques issued by ICICI in favor of sub-brokers - Held that:- Out of the payment of commission of Rs.35.65 lacs, only sum of Rs.1.73 lacs has been disallowed on the ground that addresses and confirmations could not be submitted. Assessee explained that it was only in some of the cases, where sub-brokers were reluctant to encash the bearer cheques, the assessee has assisted them in the bank at the time of encashment. Further, in most of the cases, it has been encashed by sub-brokers which are verifiable by the bank itself. Thus, the explanation of the assessee cannot be brushed aside as it carries some probability looking to the fact that huge amount of commission paid has already been accepted. Also, AO has not carried out any enquiry or has brought any material on record to show that payments were bogus. The explanations offered by the assessee have not been found to be false. Therefore, penalty for concealment of the income u/s 271(1)(c), cannot be levied and same is deleted - Decided in favor of assessee Issues:Levy of penalty under Section 271(1)(c) for assessment year 2005-2006 based on disallowed commission payments.Analysis:1. The appeal was filed against the penalty imposed by the CIT(A) under Section 271(1)(c) for the assessment year 2005-2006. The assessee, a partnership firm, received commission/service charges from direct marketing/selling agency of a bank. The Assessing Officer disallowed a portion of the commission paid to sub-brokers due to lack of confirmations and addresses.2. The Assessing Officer initiated penalty proceedings under Section 271(1)(c) based on the disallowed commission payments. The assessee argued that the commission recipients were genuine, but confirmations and complete addresses could not be provided due to time constraints. The Assessing Officer rejected the assessee's submissions and levied a penalty of Rs.63,506.3. In the first appeal, the assessee contended that all payments were made through account payee cheques, and any discrepancies were due to the unavailability of sub-brokers for verification. The CIT(A) upheld the penalty, citing the decision of the Supreme Court in a relevant case.4. During the proceedings, the assessee reiterated that the encashed money was given to sub-brokers who were unwilling to encash on their own in a few cases. The Assessing Officer and Senior DR maintained that the partners had encashed some cheques, leading to the disallowed commission income.5. The Tribunal observed that the Assessing Officer's reliance on the assessment order findings was insufficient for the penalty proceedings. The explanation provided by the assessee, regarding the encashment of bearer cheques by sub-brokers, was considered plausible, especially since a significant amount of commission had already been accepted.6. It was noted that the Assessing Officer failed to quantify the exact number of cheques directly encashed by the assessee. The Tribunal found merit in the assessee's explanation that assistance was provided to reluctant sub-brokers during encashment, and most payments were verifiable by the bank. The rebuttable presumption in Explanation 1 to Section 271(1)(c) was considered, and without evidence of bogus transactions, the penalty for concealment of income was deemed unwarranted. Consequently, the penalty was deleted, and the appeal of the assessee was allowed.