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TMI Blog2013 (5) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... ty proceeding has been initiated in the last para of the assessment order which read with the finding recorded on page No. 18 of the assessment order to the effect, the assessee clearly failed to substantiate the need for appointment of an agent............The assessee failed to produce any evidence to show the nature of services rendered, the follow up action taken, the improvement of business done by the agent, shows that the penalty proceedings u/s. 271(1)(c) was infact initiated in respect of the commission so paid. 3.The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the AO be restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary. 2. Assessee-company, engaged in the business of petro chemicals, Polymers, Rubber Chemicals and Plastic Products, filed its return of income on 25-11-1997 showing total income of 23.61 Crores. Assessment was finalised u/s.143(3) of the Income Tax Act,1961 (Act) by the Assessing Officer (AO) on 21-03-2000 determining total income of the assessee at Rs. 45.79 Crores. Facts of the case:- 3. During the assessment proceedings AO found that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transmission Systems Limited also. The agents were to render the following services: - (1) Promote sale of rubber chemicals to M/s Appolo Tyres Ltd. (2) Improve assessee's business and terms with them. (3) Solicit procurement of orders and follow up for timely payments. (4) Visit the Delhi office and plants from time to time for smoother operations. (5) Provide regular reports. In the course of the assessment proceedings the assessee was unable to produce any evidence to show that the agents rendered any worthwhile service.The Assessing Officer mentioned that the assessee was having business with M/s Appolo Tyres Ltd. for more than 10 years and there was an existing business relationship and, therefore, there was no business necessity for appointing any agents. Further, no documentary evidence could be produced to prove the rendering of the services. In this view of the matter he disallowed the commission payment.It may be mentioned that a similar arrangement was entered into with M/s Gwalior Transmission Systems Limited allegedly to promote sale of rubber chemicals to M/s J K Industries Limited.From the assessment order we find that the services to be rendered by the agent w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction amounted to concealment of particulars of income and accordingly provisions of section 271(1)(c) were applicable. Finally, he levied a penalty of Rs. 26.67 Lakhs being equivalent to 100% of tax and to be evaded on the sum of Rs.62.04 Lakhs-being the payment of overriding commission to GTSL and NCL. 4. Assessee preferred an appeal before the FAA. After considering the submissions of the assessee and the Penalty Order of the AO, FAA held that appellant had suo-motu reversed the entries regarding the overriding commission in the subsequent AY, that the reversal of provision was made much before the enquiry initiated by the AO in the assessment proceedings, that the provision for commission was made under bona fide belief, that the mistake was unintentional and inadvertent one, that there was no material to justify lack of bona fide or any cross angle, that the appellant had disclosed the treatment of the said commission in its Books of Account and had also offered for tax the provision for commission when the same was not required, that the deduction for commission of Rs.31.10 lakhs appeared to have been claimed under a bonafide belief, that same cannot be construed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Penalty u/s.271(1)(c) of the Act is always the outcome of concealment of income/furnishing of inaccurate particulars of income. It may be a case of furnishing of inaccurate particulars of income, where though income earned is offered, but some other means are adopted for reducing tax burden, such as, wrong claim of expenses or deductions or exemptions etc. It is fundamental that both the cases of concealment of income or furnishing of inaccurate particulars of income, eventually lead to evasion of tax, which is intended to be curbed by the penalty provision. Every case of penalty presupposes that there has been the rejection of assessee's stand qua some disallowance or addition etc. in the quantum proceedings. If the claim itself is mala fide, that is, it lacks good faith or some sort of deception is inherent, then penalty is considered justified. Penal provisions were introduced in the Act with a specific purpose. As per the established law of penalty; to be imposed u/s. 271(1)(c) of the Act; question of considering whether assessee is liable for penalty arises only when return of income is scrutinised by the AO and he finds some more items of income or additional income over a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taking the same stand. Therefore, it can safely be held that the claim made by the assessee was not only wrong, but also false and it was persisted with for a very long time. The assessee had not furnished any satisfactory explanation as to why a prima facie inadmissible claim was made in the return. Accordingly, it is held that no satisfactory explanation had been furnished in respect of a patently false claim and, therefore, the assessee has made itself liable for levy of penalty. In short, case under consideration is squarely covered by the provisions of section 271(1)(c) of the Act. 7.1. Finally, we also hold that mala fide intention of the assessee; in claiming deduction for the services that were not rendered; was quite visible to the proverbial 'naked eyes' and if the AO decided not to remain a mute spectator to such goings on, no fault can be found with him. After considering the orders of the Tribunal delivered in quantum proceeding, we have no doubt to hold that the claim made by the assessee was patently disallowable and for a false claim penalty was rightly levied by the AO. From the orders of the AO and the ITAT it transpires that information given in the return of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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