TMI Blog2013 (10) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on the part of the assessee, resulting thereby either in concealment of income or furnishing inaccurate particulars of income. As per Allahabad High Court in the case of CIT V/s. K.L. Mangal Sain[1974 (5) TMI 6 - ALLAHABAD High Court], 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 - Considering totality of facts and circumstances of the case on hand, this is not a fit case for levy of penalty – Decided in favor of Assessee. - ITA No.195/Hyd/2013, ITA No.233/Hyd/2013 - - - Dated:- 27-9-2013 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Shri Y. Ratnakar For the Respondent : Shri R. Laxman ORDER Per Chandra Poojari, Accountant Member: These are cross-appeals -one by the assessee and the other by the Revenue- directed against the order of the Commissioner of Income-tax (Appeals) III, Hyderabad dated 11th December, 2012, confirming part of the penalty of Rs.1,08,77,115 levied by the Assessing Officer under S.271(1)(c) of the Income-tax Act, 1961 for the assessment year 2005-06. 2. Facts of the case in brief are that the assessee is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber of payees to whom commission was paid nor it was possible to collect the same after lapse of so many years. It has also been further stated that the disallowance of commission payment was disputed by them and no penalty in respect of such disallowance can be levied. Thus stating the assessee requested that the penalty proceedings initiated be dropped. The Assessing Officer not convinced with the explanation of the assessee. He observed that it has been categorically been admitted during the finalization of the assessment proceedings and the penalty proceedings as well that they have not maintained a records of the addresses of the large number of payees to whom commission has been paid and it was not possible to collect the same. When the assessee made a claim of incurring certain expenditure which has a material bearing on the profits disclosed for income-tax purposes, the Assessing Officer noted that it is for the assessee to substantiate that the expenditure claimed was genuine, which the assessee failed to prove in the instant case. He accordingly concluded that it is a fit case for imposition of penalty, and consequently imposed penalty of Rs.1,08,77,115, vide order of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the quantum proceedings, on account of assessee's inability to substantiate such payments to the satisfaction of the Assessing Officer, that has led to the imposition of the impugned penalty for concealment. He submitted that every addition made in the assessment proceedings cannot lead to the inference of the assessee having either concealed the income or furnished inaccurate particulars of income to warrant levy of penalty under S.271(1)(c). It is submitted that the only ground on which the disallowance of commission payment was made by the Assessing Officer was the assessee's inability to furnish addresses of the recipients of the commission payments, though none of the information or evidence on record was considered or examined. He submitted that the CIT(A) in his impugned order dated 11.12.2012 merely extracted the concluding portion of the order of the Tribunal and upheld levy of 15% penalty, without examining the evidence on record. Learned counsel submitted that the explanation of the assessee against the penalty proposed was not even considered by the CIT(A) and consequently the order of the CIT(A) is totally silent on the contention of the assessee that the assessee du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declining as a percentage of the turnover. 8. The learned counsel for the assessee further submitted that assessee has offered an explanation, which was bona fide and it has substantiated the said explanation and all facts relating to the same and material to the computation of total income has been filed by the assessee. In the circumstances, it is submitted that the Explanations 1 to S.271(1)(c) is inapplicable to the facts of the case. In the face of overwhelming evidence supporting the payment of commission, the need for payment, and the fact that it is a business related expenditure, the sole fact that the addresses of the payees could not be supplied will not convert the claim for allowance of expenditure into one of concealment. Any conclusion drawn in relation to any claim for expenditure for making an assessment is not automatic or conclusive for the levy of penalty as well. 9. In support of the above contentions, the learned counsel relied on the following decisions- (a) CIT V/s. Reliance Petro Products (P) Ltd. (322 ITR 158)-SC (b) CIT V/s. Usha Marketing (P) Ltd. (332 ITR 334)-Del. (c) CIT V/s. Devsons (P) Ltd. (329 ITR 483) (d) Northland Development Hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained was only by way of estimation of excess amount allegedly claimed by the assessee. Since addition sustained was only by way of estimation, the contention of the assessee is that no penalty could be sustained with reference to such estimated additions/disallowances. It is a matter of fact that payment of commission is a general trade practice in the line of transport business, in which assessee was carrying on its business. It is recognizing this practice, that the huge commission payments claimed by the assessee, have been allowed to some extent by the appellate authorities in quantum proceedings, notwithstanding the deficiencies, like non- furnishing of the addresses of the recipients, in the vouchers filed by the assessee, noticed by the Assessing Officer. Considering the non- verifiable nature of the expenditure, as pointed out by the Assessing Officer, there is every possibility of inflation in the expenditure claimed by way of commission payments. At the same time, on the ground of non- verifiable nature itself, it would be too harsh to disallow the entire amount of commission payments claimed by the assessee, notwithstanding the voluminous evidence in the form of vouche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson, any disallowance for personal expenses was not possible; and that the nature of disallowance therefore, was such that the disallowance per se, even if accepted by the assessee, could not be a sound basis for imposition of penalty. 15. Further, considering imposition of penalty for concealment with reference to an estimated addition/disallowance, in the light of various aspects to be examined, for invoking penal provisions and imposing penalty, coordinate bench of the Tribunal in the case of P.V. Ramana Reddy V/s. ITO, in ITA no.1852-1857/Hyd/2011, vide its order dated 6.1.2012, has held as follows- 7. We have heard both the parties and perused the materials available on record. ...... ................ The Assessing Officer is required to satisfy himself about the concealment of income or furnishing inaccurate particulars of such income. It gives discretion to the Assessing Officer to exonerate the assessee from levy of penalty even in case where the assessee has concealed the income or furnish incorrect particulars of income. The expression - "if the Assessing Officer ............ is satisfied that in person ........ (c) has concealed the particulars of his inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty is not leviable and the same is deleted. 16. Since in the facts of the present case, the disallowance out of commission payments sustained by the Tribunal is merely by estimation of the excess amount of expenditure which the assessee might have been claimed by the assessee, and further, since such disallowance has been made on the basis of the material furnished by the assessee itself and already available on record, we are of the view that this is not a fit case for imposition of the penalty under S.271(1)(c) of the Act. Further, the impugned orders of the lower authorities proceed merely on the basis of the findings in the quantum proceedings and have not independently examined the matter in the penal proceedings for levy of penalty under S.271(1)(c) of the Act. Even on this procedural count, the penalty levied cannot be sustained. Though the addition was sustained at 15% of the commission payment by the Tribunal, that by itself does not prove that there is any conclusive material to suggest that the assessee has earned exactly that amount of profit, out of this disallowance determined by the Assessing Officer. Penalty cannot be levied in this kind of situation. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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