Tribunal Cancels Penalty for Income Concealment, Cites Bona Fide Explanation and Insufficient Evidence by AO.

Star International (P.) Limited. Versus Assistant Commissioner Of Income-tax, Vi, Kanpur.

Star International (P.) Limited. Versus Assistant Commissioner Of Income-tax, Vi, Kanpur. - [2009] 308 ITR 33, ITD 116, 408, TTJ 122, 380, [2008] 23 SOT ... Issues Involved:
1. Levy of penalty for concealment of income under Section 271(1)(c).
2. Justification and substantiation of commission expenses.
3. Condonation of delay in filing the appeal.

Detailed Analysis:

1. Levy of Penalty for Concealment of Income Under Section 271(1)(c):
The core issue in this case is whether the penalty for concealment of income under Section 271(1)(c) of the Income Tax Act was justified. The assessee, a manufacturer of industrial swing machines, was initially assessed on an income of Rs. 5,94,864, which later increased to Rs. 13,28,076 after scrutiny. The primary addition was Rs. 7,22,740, claimed as commission paid to technically skilled workers. The Assessing Officer (AO) found discrepancies in the addresses and the inability to contact the recipients, leading to a show-cause notice. The assessee surrendered the commission amount with a request to avoid penal action. Despite this, the AO initiated penalty proceedings, citing the inability to substantiate the expenditure.

2. Justification and Substantiation of Commission Expenses:
During the assessment proceedings, the AO required the assessee to justify the commission expenses. The assessee provided a list of recipients, but the AO's inspector could not verify their presence. The AO inferred the payments were not genuine, especially since some cheques were withdrawn in cash without evidence of services rendered. The CIT(A) upheld the penalty, stating the expenditure was non-genuine/bogus and that the assessee furnished inaccurate particulars. The assessee argued that the artisans were uneducated and feared coming to the income-tax office, and that commission payments were a regular feature in their business, accepted in previous and subsequent years.

3. Condonation of Delay in Filing the Appeal:
The appeal was filed late by 222 days. The assessee submitted an affidavit explaining that the delay was due to the misplacement of appeal papers by a senior counsel. The tribunal accepted this explanation, condoning the delay and admitting the appeal.

Tribunal's Findings:
The tribunal noted that the payment of commission resulted in increased sales and that such payments were a regular feature in the assessee's business, accepted in previous and subsequent years. The tribunal found no material evidence from the revenue to prove the commission payments were bogus. The AO's inability to produce the artisans was not sufficient grounds for penalty under Section 271(1)(c). The tribunal emphasized that for penalty under Explanation 1(B) of Section 271(1)(c), the AO must prove that the explanation was not bona fide and that all material facts were not disclosed. The tribunal concluded that the assessee's explanation was prima facie bona fide, supported by regular commission payments and correct addresses. The AO failed to provide positive material evidence to prove the claim was false or inaccurate.

Conclusion:
The tribunal held that mere disallowance of expenditure does not justify penalty for concealment of income. The penalty was cancelled, and the appeal was allowed in favor of the assessee.