2017 (8) TMI 274 - AT - Income Tax

Tribunal cancels penalty under Income-tax Act, citing full disclosure and bona fide explanation

Assistant Commissioner of Income-Tax Versus Usha Wadhwa

The Tribunal upheld the decision to cancel the penalty under section 271(1)(c) of the Income-tax Act, finding that the assessee's full disclosure of facts ... Penalty under section 271(1)(c) - disallowance of liasoning commission - satisfaction regarding concealment of income - Held that:- As during the course of assessment proceedings, the assessee submitted complete details of sub-agents rendering services for the assessee in the State of Haryana. Their statements were recorded in which they have confirmed having received the payment after deduction of TDS and service tax. The assessee, thus, has disclosed all the material facts to the Revenue authorities. In the assessment year 2005-06, in the original scrutiny proceedings, the Assessing Officer allowed a similar claim of the assessee on the same set of facts. Therefore, there is no finding by the authorities below that any details or explanations given by the assessee in his return are found to be incorrect or erroneous or false. A mere making of claim which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding income of the assessee. Merely because the commission expenses have been disallowed in the assessment year under appeal and confirmed by the appellate authority, by itself is no ground to levy the penalty under section 271(1)(c) of the Act against the assessee. - Decided in favour of assessee. Issues Involved:1. Cancellation of penalty under section 271(1)(c) of the Income-tax Act.2. Disallowance of liasoning commission expenses.3. Assessment of the assessee's explanation and evidence provided.4. Application of legal precedents and principles in penalty proceedings.Issue-wise Detailed Analysis:1. Cancellation of Penalty under Section 271(1)(c) of the Income-tax Act:The Revenue appealed against the order of the Commissioner of Income-tax (Appeals) which cancelled the penalty under section 271(1)(c). The penalty was initially imposed after the Income-tax Appellate Tribunal confirmed the addition of Rs. 41,14,518 on account of liasoning commission. The Commissioner of Income-tax (Appeals) deleted the penalty, noting that the assessee disclosed all facts and that the sub-agents confirmed receipt of the commission. The Tribunal upheld the deletion of the penalty, emphasizing that the mere disallowance of an expense does not automatically justify the imposition of a penalty.2. Disallowance of Liasoning Commission Expenses:The Assessing Officer disallowed the liasoning commission expenses of Rs. 41,14,518, which was confirmed by the Tribunal. The disallowance was based on the assessee's inability to establish a link between the expenses incurred and the services rendered. However, the Commissioner of Income-tax (Appeals) initially allowed the expenses, recognizing that the sub-agents confirmed receipt of the commission after TDS and service tax deductions. The Tribunal later upheld the disallowance, but the penalty was still deemed inappropriate due to the full disclosure of facts by the assessee.3. Assessment of the Assessee's Explanation and Evidence Provided:The assessee provided detailed submissions, explaining the business operations and the necessity of engaging sub-agents for liasoning services in Haryana. The assessee produced all relevant books of account, records, and statements from sub-agents confirming receipt of payments. The Commissioner of Income-tax (Appeals) and the Tribunal both acknowledged that the assessee disclosed all material facts and that the sub-agents confirmed the transactions. The Tribunal noted that the penalty proceedings are distinct from assessment proceedings and that the assessee's explanation was bona fide and supported by evidence.4. Application of Legal Precedents and Principles in Penalty Proceedings:The Tribunal referred to several legal precedents, including the Supreme Court's decision in CIT v. Reliance Petroproducts Pvt. Ltd., which clarified that merely making an unsustainable claim does not amount to furnishing inaccurate particulars of income. The Tribunal emphasized that penalty under section 271(1)(c) is not automatic and depends on the facts and circumstances of each case. The Tribunal also noted that the Assessing Officer was not clear whether the penalty was for concealment of income or for filing inaccurate particulars, further supporting the decision to cancel the penalty.Conclusion:The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to cancel the penalty under section 271(1)(c), finding no infirmity in the order and dismissing the Departmental appeal. The Tribunal concluded that the assessee's disclosure of all material facts and the bona fide nature of the explanation provided justified the cancellation of the penalty.