TaxTMI 
TaxTMI 
2013 (10) TMI 870
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.... assessment under S.143(3) of the Act on 28.12.2007, disallowing commission payments aggregating to Rs.2,97,24,985 and determining the total income of the assessee at Rs.5,69,20,590. On appeal, the CIT(A) confirmed the said disallowance following the appellate orders on this very issue of disallowance in respect of commission payment for earlier years. On further appeal, the Tribunal gave some relief to the assessee, by sustaining the disallowance only to the extent of 15%, and directing the Assessing Officer to recompute the income accordingly. 3. While completing the assessment as above, the Assessing Officer also initiated proceedings for levy of penalty under S.271(1)(c) of the Act. In response to the penalty notice, the assessee vide its letter dated 2.3.2010 filed its explanation, contending inter alia that they have neither concealed their income nor furnished inaccurate particulars of such income; that there has been no failure on their part to disclose fully and truly all material facts necessary for the completion of assessment; that they have given all the details, documents and information without withholding any information relating to computation of their income an....
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.... relevant particulars/details nor intention to evade tax on the part of the assessee. It was also submitted that out of the total commission payments which were disclosed in the Profit & Loss Account, the Assessing Officer had allowed those commission payments which were made by cheque. The CIT(A) too did not find merit in the contentions of the assessee. He did not agree with the assessee that there was just an estimated disallowance of commission payments. He observed that wherever the parties are identifiable and the transactions are genuine, the Assessing Officer has allowed such payments and it is only where the assessee deliberately did not provide any details that the disallowance was made. He further observed that there was inflation of expenses, and precise extent of such inflation is known only to the assessee. With these observations, the CIT(A) concluded that the affairs of the assessee are arranged in such a manner that the Assessing Officer cannot decipher the truth and there is ample scope of managing the amount of expenses to be debited. He further noted that the fact of inflation of expenses in the case of the assessee on the issue of commission has been confirmed ....
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....at even in respect of commission amounts paid by remittance through bank to non-residents, penalty is levied without looking at the facts of the case. He submitted that even the relevant portion of the order of the Tribunal relied upon by the CIT(A) in the impugned order does not state that the 15% disallowance sustained represents the fictitious expenditure or not genuine expenditure. The said disallowance was sustained merely on the ground of the same being excessive payment, that too determining the quantum of such excess by resorting to estimation. 7. The learned counsel submitted that the commission payment vouchers give full details of the payment of commission which can be linked fully to the consignments transported. He further submitted that all details are fully available in these commission payment vouchers. Seventy nine affidavits, duly signed by the Senior Managers of the assessee company, affirming payment of commission at various accounting centers, were filed . It is also submitted that payment of commission is a normal trade practice for getting business in transport industry and there are comparable cases given where commission was paid. It is pleaded that omis....
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....ssessee submitted that it is a clear cut case of concealment and the Assessing Officer was perfectly justified in imposing the penalty under S.271(1)(c) with reference to the disallowance of entire commission payment made in the assessment. Consequently, it is submitted that the CIT(A) was not justified in granting any relief to the assessee. 11. We have considered the rival submissions and perused the orders of the lower authorities and other material available on record. As already noted above penalty under S.271(1)(c) of the Act has been made by the Assessing Officer with reference to the disallowance of entire commission payments made in the quantum proceedings by the Assessing Officer. When the matter reached the second appellate stage, the Tribunal vide its consolidated order dated 25.1.2012, inter-alia in ITA No.19/Hyd/2009 for the assessment year 2005-06, limited the disallowance made by the Assessing Officer to only 15%. In this view of the matter, the CIT(A) by the impugned order sustained the penalty levied by the Assessing Officer only with respect to the disallowance sustained in the quantum proceedings. 12. At the outset, we may note that insofar as the relief g....
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....in the year under appeal, by making a reasonable estimation of excess amount that might have been claimed by the assessee. Such addition sustained by the Tribunal is only on account of a estimation that the assessee could have and might have inflated the expenditure by way of commission payments. As for the quantum proceedings, inference drawn by the Tribunal as to the inflation in expenditure and consequent addition, could be justified. But, that inference is confined to quantum proceedings only, and it cannot be validly applied even in proceedings under S.271(1)(c) of the Act, in which the matter needs to be examined independently by ascertaining whether the assessee has either concealed its income or furnished inaccurate particulars of income. This exercise is warranted, since the proceedings under S.271(1)(c) are penal in nature, and call for a finding as to the conduct of the assessee either with regard to concealment of income or furnishing of inaccurate particulars of income. Since in the instant case, the disallowance of out of expenditure claimed on account of commission payments is made, by resorting to estimation of the inflation of such expenditure which might have been....
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....uld not be imposed merely because it is lawful to do so. The Assessing Officer has to exercise his discretion judiciously. If an assessee files the revised return though at a later stage or disclosed true income, penalty need not be levied. No doubt, merely offering additional income will not automatically protect the assessee from levy of penalty but in a given case where the assessee's case forward with additional income though after deduction on account of that the assessee was not in a position to explain properly, the seized material and express remorse, in his conduct un-hesitantly, the Assessing Officer might have to exercise the discretion in favour of such assessee as otherwise the expression 'may' in section 271(1)(c) of the Act remains redundant. If it is understood that in a case of admitted concealment penalty is automatic. The discretion vested in the officer should be used not to levy the penalty. In our opinion, the case before us is most befitting case to exercise such discretion, particularly there is divergent of opinion among the lower authorities as well as the Tribunal while deleting or sustain the addition. It shows that there is no conclusive proof that the ....
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....by the Assessing Officer and the Tribunal, and the claim of the assessee itself was not found to be bogus. The Assessing Officer could not prove that there was willful or gross negligence on the part of the assessee, resulting thereby either in concealment of income or furnishing inaccurate particulars of income. As held by the Allahabad High Court in the case of CIT V/s. K.L. Mangal Sain(107 ITR 598), when the Assessing Officer is not able to prove that the assessee was guilty of fraud or gross or willful negligence, penalty cannot be sustained. If, looking to the nature of the business, particular method of accounting is adopted by the assessee for booking the expenditure, but the Assessing Officer is not satisfied with the method of accounts kept by the assessee and the book results are rejected, there is no failure to return correct income due to fraud, gross or willful neglect, as held by the Bombay High Court in the case of CIT V/s. Mohammed Yakub Mohd. Ibrahim & Co. (143 ITR 67). Sometimes, the Assessing Officer estimates the income of the assessee and thereafter the appellate authorities adopts different method and estimates income. In such circumstances, as held by the Pun....