TMI Blog2012 (9) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... commission payments and the payments have been made by account payee cheques also & in the penalty proceedings assessee was not sought opportunity to cross examine those two persons, the same was not provided by the Assessing Officer no levy of penalty u/s. 271(1)(c) can be warranted - in favour of assessee - ITA Nos.567, 568 & 569/Del/2006 - - - Dated:- 7-9-2012 - Shamim Yahya, C M Garg, JJ. For Appellants: Shri Ajay Vohra, Rohit Jain, Advs., Ashwani Seta, CA, Deepashree Rao, CAs For Respondent: Dr B R R Kumar, Sr. DR ORDER Per: Shamim Yahya: These three appeals are preferred by the Revenue against a common order of Ld. Commissioner of Income Tax (A)-XVIII, New Delhi dated 22.11.2005 whereby he cancelled the penalties of Rs.18,32,996/-, Rs.35,00,189/- and Rs.9,16,213/- imposed by the Assessing Officer u/s. 271(1)(C) for A.Y.rs. 1981-82, 1982-83 1983-84 respectively. 2. The relevant facts of the case giving rise to these appeals are as follows. The assessee is a private limited company which filed its return of income for A.Y. 1981-82, 82-83 and 83-84 on 30.6.1981, 30.6.1982 and 10.8.1983 respectively. On the basis of the said returns, assessments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditions made towards payment of commission to above three companies was confirmed by Ld. Commissioner of Income Tax (A). Assessee filed an appeal before the ITAT on the issue of disallowance of payment of commission to above three parties and the ITAT vide order dated 24.12.93 the assessment were set aside with the directions to afford reasonable opportunity to the assessee to cross examine the persons on whose statements the additions were made. In the set aside proceedings the additions were again confirmed by the Assessing Officer. The additions of this commission was confirmed by the Ld. Commissioner of Income Tax (A). The ITAT vide common order for assessment years 1981-82, 82-83 83-84 dismissed the appeal of the assessee, after elaborately discussing the sequence of the events and facts in the body of the order. Subsequent to the above ITAT order penalty proceedings were initiated. The AO. observed that the issue of cross examining the two witnesses of the case and that no opportunity was provided for cross examining has been rejected by ITAT and the assessee had also categorically refused to cross examine Shri AK. Jhunjhunwala on 27.02.1996 stating that he was stranger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and in the correspondence with the principals of the clients there is no mention about any role of the three companies who have claimed as sub agent for liaison work and the correspondence has been put in between the clients/principals for justifying the role of payment of 75-80% of the commission received by it. The companies have highly qualified and experienced personnel but the correspondence do not show any evidence and the assessee company ever tried to find out about the genuineness of the claim which proves that the correspondence between M/s. Roger Enterprises Pvt. Ltd. and all the three companies were not genuine. Thus the Assessing Officer concluded that this corroborates the claim of Shri Meattle that he had signed the papers purportedly claimed as correspondence without actually undertaking any work for the assessee and therefore papers filed by the assessee cannot be relied upon. The AO has stated that the assessee company has given parawise reply claiming the commission was genuine not withstanding the statement given by Shri Meattle and Shri Jhunjhunwala which did not substantiate the same and has not agreed with the contentions of the assessee. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the Assessing Officer in the course of assessment proceedings and / or other proceedings. Ld. Commissioner of Income Tax (A) further observed that as the explanations furnished by the assessee are bonafide and therefore merely because disallowance has been made and confirmed by ITAT no penalty is leviable. Ld. Commissioner of Income Tax (A) further noted that during the course of penalty proceedings assessee company requested the Assessing Officer to cross examine Sh. Meattle and Mr. Jhunjhunwala whose statement was relied upon by the Assessing Officer in disallowing the commission paid by the company. Ld. Commissioner of Income Tax (A) noted that penalty proceedings are separate proceedings and Assessing Officer should have allowed cross examination of both the persons which have been denied due to time baring matter when the set aside order was passed on 25.3.1996. Ld. Commissioner of Income Tax (A) opined that in the interest of justice such opportunity should have been allowed. The whole assessment / reassessment is based upon the statement of two persons mentioned above and no opportunity was allowed in the penalty proceedings to cross examine them. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax (A) further observed that the payment of commission is further supported by the bank statement of the company where the payments have been made by account payee cheques/ drafts and duly admitted of the recipients and the stamped receipts has also been filed alongwith other necessary documents evidencing payment of commission. Therefore, Ld. Commissioner of Income Tax (A) held that explanations of the assessee has been bonafide and the additions made just on the statements of the two persons mentioned above does not amount to concealment or filing of inaccurate particulars of income. In the background of the aforesaid discussion, Ld. Commissioner of Income Tax (A) deleted the levy of penalty for the three years. 5. Against the above order the Ld. Commissioner of Income Tax (A), assessee filed appeal before the ITAT. ITAT considered the case vide order dated 11.12.2006 and held as under:- 4. At the time of hearing before us, nobody has put in appearance on behalf of the assessee and even the notice of hearing sent by registered post at the address given has come back undelivered form the postal authorities. These appeals are, therefore, being disposed of exparte qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings u/s. 271(1)(c) and this being the undisputed position, we hold that the imposition of penalties by the Assessing Officer was not sustainable in law. We, therefore, uphold the impugned order of the Ld. Commissioner of Income Tax (A) cancelling the said penalties imposed by the Assessing Officer u/s. 271(1)(c) on this preliminary issue and dismiss these appeals filed by the Revenue. 6. Against the above order the Revenue appealed before the Hon ble High Court of Delhi. In the appeal for assessment year 1982- 83 vide order dated 12.9.2008, the Hon ble High Court has held as under:- This appeal pertains to the assessment year 1982-83 and arises out of the Tribunal s order dated 11.12.2006. Section 271(1B) has been inserted in the Income Tax Act, 1961 by the? Finance Act, 2008 with retrospective effect form 1st April, 1989. The inserted Provision reads as follows:- (1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings. Under clause (c) of sub-section (1), such an order of assessment or reassessment shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quantum appeals have been dismissed by the tribunal. Hence, he pleaded that penalty in this regard should be sustained. In this regard, Ld. Departmental Representative relied upon the following citations: - ACIT vs. Jasubhai Business Services P Ltd. - 5 SOT 36 - Kamal Chand Jain vs. ITO - 277 ITR 429 - Union of India vs. Dharmendra Textile Processors - 306 ITR 277 - C.I.T. vs. Somnath Oil Mills - 214 ITR 32 - Western Automobiles (India) vs. C.I.T. - 112 ITR 1048 - C.I.T. vs. Prathi Hardware Store - 203 ITR 641 - C.I.T. vs. United Commercial Industrial Co. Ltd. - 187 ITR 596 - Sumati Dayal vs. C.I.T. - 214 ITR 801 11.1 Ld. Authorised Representative on the other hand submitted that the Ld. Commissioner of Income Tax (A) has passed a reasonable order. He submitted that proper opportunity to cross examine all the persons on whose statements, addition has been made in this regard has not been allowed to the assessee. He further submitted that the quantum proceedings and penalty proceedings are two separate proceedings. It cannot be said that the penalty is automatic on confirmation of quantum addition. Ld. Counsel further submitted that the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantiated on account of lack of opportunity to cross examine the parties whose whose ex-parte statements have been used for making the disallowance. We find that in the set aside proceedings Mr. Meattle could not be produced for cross examination and the Assessing Officer himself in the order has admitted that the issue of cross examination of Mr. Meattle has come to dead end. 12.1 We further find that during the course of penalty proceedings assessee company requested the Assessing Officer to cross examine Sh. Meattle and Mr. Jhunjhunwala whose statement was relied upon by the Assessing Officer in disallowing the commission paid by the company. In this regard, we agree with the Ld. Commissioner of Income Tax (A) s observation that penalty proceedings is separate proceedings and Assessing Officer should have allowed cross examination of both the persons which has been denied due to time baring matter when the set aside order was passed on 25.3.1996. Thus, the whole assessment / reassessment is based upon the statement of two persons mentioned above and no opportunity was allowed in the penalty proceedings to cross examine them. Thus, we agree with the observation of the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court and the matter was debatable. 15. We further find that Mumbai Bench of the Tribunal in I.T.A. No. 2379/Mum/2009 in the case of Nayan Builders and Developers P Ltd. vs. ITO vide order dated 18.3.2011 has noted that the tribunal had affirmed in this case the addition in quantum proceedings for which the penalty has been held to be imposable. The Tribunal has held as under:- It is, therefore, abundantly clear that the additions in respect of which penalty was confirmed have been accepted by the Hon ble Bombay High Court leading to substantial question of law. When the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied u/s. 271(1)(c) as has been held in several cases including Rupam Mercantile vs. DCIT [2004] 91 ITD 237 (Ahd) (TM)] and Smt. Ramila Ratilal Shah vs. ACIT [(1998) 60 TTJ (Ahd) 171]. The admission of substantial question of law by the Hon ble High court lends credence to the bona fides of the assessee in claiming deduction. Once it turns out that the claim of the assessee could have been considered for deduction as per a person properly inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer for any reason, the assessee will invite the penalty u/s 271(1)(c). This is clearly not the intendment of legislature. 18. We further find that case laws relied upon by the Revenue are not applicable on the facts and circumstances of the case. - In ACIT vs. Jasubhai Business Services P Ltd. - 5 SOT 36 , it was held that the when assessee filed inaccurate particulars for claiming deduction and explanation furnished by assessee was not bonafide penalty u/s. 271(1)(c) was leviable. - In Kamal Chand Jain vs. ITO - 277 ITR 429 , it was the case that assessee was not able to offer any satisfactory explanation for certain sum as surrendered by it, in regard to the source. - In Union of India vs. Dharmendra Textile Processors - 306 ITR 277 , it was held that Section 11AC of the Central Excise Act, 1944 cannot be read to contain mens rea as an essential ingredients and there was no scope for levying penalty below prescribed minimum limit. - In C.I.T. vs. Somnath Oil Mills - 214 ITR 32 , the issue pertained to penalty in the case where based on documents seized by the Sales Tax authorities, assessee was held to have income from undisclosed sources on account of unaccoun ..... 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