2017 (9) TMI 1516 - AT - Income Tax

Penalty under Income-tax Act for AY 2010-11 set aside due to unjustified disallowance of expenses

The Tribunal set aside the penalty imposed under section 271(1)(c) of the Income-tax Act for the assessment year 2010-11. The penalty was challenged by ... Penalty u/s 271(1)(c) - debiting inadmissible expenses on account of making commission payment for providing tips for purchasing shares - Held that:- In the instant case, when the Assessing Officer has not disputed the particulars of income furnished by the assessee nor has he disputed the amount on which commission is claimed to have been paid by the assessee, the disallowance on the ground of challenging the capabilities of Ms. Divya Khanna to provide tips for purchasing shares etc., is merely a subjective findings which are not sustainable. These days it is a matter of common knowledge that persons of 20 years of age are capable enough to advice and carry on such business even on their own. Moreover, when the Assessing Officer himself has allowed the commission of ₹ 5,00,000 having been paid to Mr. Sanjeev Khurana, merely disallowing the commission payment on the basis of subjective satisfaction without calling upon the assessee as to what type of advice and know-how has been provided by Ms. Divya Khanna to earn the business income on which tax has already been paid, the penalty cannot be imposed nor does it amount to furnishing of inaccurate particulars. No penalty under section 271(1)(c) to be imposed - Decided in favour of assessee. Issues:1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2010-11.2. Disallowance of professional and management expenses leading to penalty.3. Justification for initiation and finalization of penalty proceedings.4. Rejection of bona fide explanation for penalty.5. Relevance of cases referred to by the Assessing Officer and Commissioner of Income-tax.6. Deletion of penalty under section 271(1)(c) in the interest of equity and merits of the case.Issue 1: The appellant sought to set aside the penalty order under section 271(1)(c) for the assessment year 2010-11. The penalty was imposed based on disallowance of professional and management expenses, leading to a challenge by the appellant before the Tribunal.Issue 2: The Assessing Officer initiated penalty proceedings due to debiting an amount for professional and management charges paid to individuals, including Ms. Divya Khanna. The Assessing Officer concluded that the expenses were booked to reduce income, as Ms. Divya Khanna, a 20-year-old student, had no active participation in the business. Consequently, penalty proceedings were initiated under section 271(1)(c) for inaccurate particulars of income.Issue 3: The appellant contested the penalty order before the Commissioner of Income-tax (Appeals), who upheld the penalty. The appellant then approached the Tribunal challenging the penalty order, questioning the justification for initiation and finalization of penalty proceedings.Issue 4: The Assessing Officer rejected the bona fide explanation offered by the appellant, leading to the imposition of penalty under section 271(1)(c). The Tribunal examined the grounds of appeal and arguments presented by both parties to determine the validity of the penalty.Issue 5: The Tribunal analyzed the relevance of cases referred to by the Assessing Officer and the Commissioner of Income-tax in imposing the penalty. The Tribunal considered whether the penalty was in line with the merits of the case and the explanations provided by the appellant.Issue 6: The Tribunal, after considering the facts, arguments, and relevant legal provisions, found that the penalty imposed under section 271(1)(c) was not justified. Citing the decision in CIT v. Reliance Petroproducts Pvt. Ltd., the Tribunal concluded that the appellant did not furnish inaccurate particulars of income, leading to the deletion of the penalty in the interest of equity and merits of the case.