2024 (3) TMI 303 - AT - Income Tax

Penalty deleted for commission expenses but upheld for foreign travel and agent payments under section 271(1)(c)

M/s. Marvel Drugs Pvt. Ltd. Versus ITO 6 (3) (3), Mumbai

The ITAT Mumbai upheld penalty deletion for commission expenses under section 40(a)(ia) since the coordinate bench had already deleted the underlying ... Penalty u/s 271(1)(c) - disallowances in the quantum assessment order - whether any concealment or furnishing of inaccurate particulars proved? - Disallowance under section 40(a)(ia) on commission expenses - HELD THAT:- We find that the coordinate bench of the Tribunal in assessee’s quantum appeal in Marvel Drugs Pvt. Ltd for the assessment year 2006-07, deleted the aforesaid disallowance. Thus, since the addition has been deleted by the coordinate bench in the quantum proceedings, we find no basis in sustaining the penalty in relation to the aforesaid disallowance. Accordingly, the same is directed to be deleted. Penalty levied in relation to unexplained investment in capital work in progress and in relation to capital expenditure claimed as Revenue expenses - AR submitted that the impugned additions are arising on account of the reconciliation of certain details pertaining to M/s JAES Construction, through whom the assessee claims to have carried out work in progress at its Taloja factory site - As submitted that pursuant to remand by the coordinate bench, the issue is still under consideration before the learned CIT(A) and no order has been passed till date. Accordingly, we deem it appropriate to restore the issue of levy of penalty in respect of the aforesaid additions to the file of the learned CIT(A). Penalty levied in relation to Foreign travelling expenses and commission and brokerage paid to foreign agent - It is an admitted position that in the quantum appeal before the Tribunal, the assessee did not press its ground challenging the aforesaid addition. During the hearing, no material was brought on record to controvert the findings of the AO that the expenditure incurred on foreign tours of the family members is wholly and exclusively for the purpose of the business of the assessee. Accordingly, we find no infirmity in the findings of the learned CIT(A), vide impugned order, in upholding the penalty in relation to the aforesaid addition. Validity of the penalty order due to not striking off one of the limbs while initiating the penalty under section 271(1)(c) - From the perusal of the notice issued u/s 274 r/w section 271 we find that the AO has placed the tick against the option “have concealed the particulars of your income”. Since the assessee was duly put to notice under section 274 about the basis of initiating penalty proceedings under section 271(1)(c) of the Act, we are of the considered view that no prejudice has been caused to the assessee and there is no violation of the principles of natural justice. As a result, ground raised in assessee’s appeal is dismissed. Issues Involved:1. Penalty confirmation under section 271(1)(c) for disallowances in the quantum assessment order.2. Penalty confirmation for disallowances without concealment or furnishing inaccurate particulars.3. Validity of penalty order due to failure to specify the limb of section 271(1)(c) attracted.Summary:Issue 1: Penalty confirmation under section 271(1)(c) for disallowances in the quantum assessment orderThe assessee challenged the penalty levied under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2006-07. The penalty was imposed based on various disallowances and additions made during the assessment proceedings. The Tribunal noted that the penalty related to disallowances under section 40(a)(ia) on commission expenses, unexplained investment in capital work in progress, capital expenditure claimed as revenue expenses, foreign traveling expenses, and commission and brokerage paid to a foreign agent.(a) Disallowance under section 40(a)(ia) on commission expenses:The Tribunal observed that the coordinate bench had deleted the disallowance in the quantum appeal, thus finding no basis to sustain the penalty. The penalty related to this disallowance was directed to be deleted.(b) Unexplained investment in capital work in progress and (c) Capital expenditure claimed as Revenue expenses:The Tribunal noted that the coordinate bench had restored these issues to the file of the learned CIT(A) for de novo adjudication. Consequently, the Tribunal restored the penalty issue to the learned CIT(A) to decide on its sustainability after adjudicating the additions.Issue 2: Penalty confirmation for disallowances without concealment or furnishing inaccurate particulars(d) Foreign traveling expenses:The Tribunal upheld the penalty related to foreign traveling expenses, as the assessee did not provide evidence to show the expenditure was wholly and exclusively for business purposes. The penalty was sustained due to the absence of material to controvert the findings of the AO.(e) Commission and brokerage paid to a foreign agent:The Tribunal also upheld the penalty for commission and brokerage paid to a foreign agent, as the assessee failed to submit supporting bills and vouchers and did not establish the connection of the expenditure with its business.Issue 3: Validity of penalty order due to failure to specify the limb of section 271(1)(c) attractedThe Tribunal found that the AO had duly indicated the basis for initiating penalty proceedings by ticking the option 'have concealed the particulars of your income' in the notice under section 274. Therefore, no prejudice was caused to the assessee, and there was no violation of natural justice principles. The ground challenging the validity of the penalty order was dismissed.Conclusion:The appeal by the assessee was partly allowed for statistical purposes, with certain penalties deleted or remanded for reconsideration, while others were upheld. The order was pronounced in the open court on 27.02.2024.