2008 (9) TMI 402 - AT - Income Tax

Tribunal Overturns Penalty for Excessive Payment, Citing Lack of Income Concealment and Discretionary Penalty Nature.

The Tribunal allowed the appeal of the assessee, setting aside the penalty under section 271(1)(c) of the IT Act imposed by the CIT(A) for excessive ... Levy of penalty u/s 271(1)(c) - Concealment of income - excessive payment made to the sister concern, with a view to reduce its own tax liability - disallowed u/s 40A(2)(b) - HELD THAT:- In the case CIT vs. Smt. P.K. Kochammu Amma Peroke [1980 (9) TMI 1 - SUPREME COURT], the principle laid down in the case of V.D.M.RM.M.RM. Muthiah Chettiar [1969 (2) TMI 16 - SUPREME COURT] has been only reiterated but distinguished on the ground that the note in the form of return of income had been overlooked. Since no specific form of disclosure is contemplated by the Act as well as the Rules and the form of return prescribed, an assessee can never be held to be guilty of non-disclosure of income which is determined by applying the provisions of s. 40A(2)(b). We therefore hold that in the absence of any provision of particular disclosure of the transaction in question, the disclosure of the same in its books of account as done by the assessee was sufficient in law. The provisions of s. 271(1)(c) of the Act were not attracted to the cases where income of an assessee is assessed on estimate basis and additions are made therein. It was held that when the additions has been made on the basis of estimate and not on account of any concrete evidence of concealment, penalty was not leviable. In the case of Dilip N. Shroff vs. Jt. CIT [2007 (5) TMI 198 - SUPREME COURT] the apex Court considered the scope of levying penalty u/s. 271 (1)(c). In the present case the disallowance u/s. 40A(2)(b) cannot be considered as concealment of income or furnishing inaccurate particulars. Consequently we are of the opinion that the facts of the case does not warrant penalty u/s. 271(1)(c). Therefore, the order of the CIT(A) is set aside. Penalty cancelled. In the result, appeal of the assessee is allowed. Issues:Penalty under section 271(1)(c) of the IT Act for excessive payment made to a sister concern in a real estate development and construction business.Analysis:1. The AO disallowed an amount under section 40A(2)(b) as excessive payment made by the assessee to a sister concern for job work done. The CIT(A) confirmed the disallowance and initiated penalty proceedings under section 271(1)(c).2. The assessee argued that there was no concealment of income, and the payment was not doubted but only restricted by the AO under section 40A(2)(b). The assessee cited relevant case laws to support the contention that excessive payment under section 40A(2)(b) does not warrant penalty under section 271(1)(c).3. The Departmental Representative contended that the payment was not bona fide, as quotations obtained were less than the amount paid to the sister concern, justifying the penalty under section 271(1)(c).4. The Tribunal examined the record and noted that the work was undertaken for the payment made. The AO invoked section 40A(2)(b) based on the reasonableness of the payment, not doubting the genuineness of the work. The Tribunal highlighted the discretionary nature of section 40A(2) and the absence of specific disclosure requirements in the return of income.5. The Tribunal held that there was no charge of furnishing inaccurate particulars as all details were furnished correctly. The disallowance was made under deeming provisions of law, and penalty under section 271(1)(c) was not warranted when income was assessed on an estimate basis without concrete evidence of concealment.6. Referring to legal precedents, the Tribunal emphasized that penalty under section 271(1)(c) is discretionary and not automatic. The Tribunal concluded that the disallowance under section 40A(2)(b) did not amount to concealment of income or furnishing inaccurate particulars, leading to the cancellation of the penalty imposed by the CIT(A).7. The Tribunal allowed the appeal of the assessee, setting aside the penalty under section 271(1)(c) imposed for excessive payment made to a sister concern in the real estate development and construction business.