TMI Blog2016 (5) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has already accrued to the assessee in terms of provisions of the Act and the same is exigible to tax . Thus, the assessee came out with an bona-fide explanation for substantiating the claim made by it in the return of income filed with the Revenue which was not accepted by the Revenue but it did not made the assessee firm liable for penalty u/s 271(1)(c) of the Act. There is a difference of opinion between the assessee firm and A.O. and the claim of the assessee firm was not accepted by the A.O. Mere non-acceptance of the bona-fide claim of the tax-payer by the Revenue does not call for imposition of penalty within the ambit of provisions of Section 271(1)(c) of the Act , more-so the assessee firm came forward with a bona-fide explanation to substantiate its claim and hence the case of the assessee is not hit by explanation 1 to Section 271(1)(c) of the Act. - Decided in favour of assessee - I .T.A. No. 6168/Mum/2012 - - - Dated:- 11-5-2016 - Shri Saktijit Dey, Judicial Member And Shri Ramit Kochar, Accountant Member For the Petitioner : Shri A. Ramachandran For the Respondent :: Shri M.V. Choksi ORDER Per Ramit Kochar, Accountant Member This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1.62 crores. These advances were commission payments for indenting services provided by the assessee firm to the foreign clients. On perusal of the agency agreements signed with the foreign clients , it was observed by the AO that the commission will become due and payable after the clients receives the full sale price for the products sold by it to the customers in the territory. As the commission payments were already received by the assessee firm, it was concluded by the A.O. that the assessee firm has completed its assignments as per agency agreements and the income has already accrued to the assessee firm. To prove that the commission payment received by the assessee firm from foreign principals is no longer a liability but already accrued to the assessee firm as income, the A.O. critically examined the agreement with foreign principal namely Ascometal France and proved that the commission income has already accrued to the assessee firm. The analysis of the agreement by the AO of the afore-stated agreement is reproduced below:- The agency agreement signed by the assessee firm with Ascometal France can be analysed in detail to prove that the contention of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted by us the amount of commission already paid by us will be recovered from assessee firm. Thus it is evident from the above agreement that the commission is paid to the assessee firm only when it has done its job of procuring the orders and the company Ascometal France has received the full sale price for the products sold by it to the customers in the territory. The only ground on which the assessee has based his contention is the clause in the agency agreement which says that- 'the commission amount can be increased or decreased by initial agreement and in exceptional cases where the customer prefers a claim the amount of commission already paid will be recovered'. But this contention of the assessee is completely against the principles of accounting. Since the income has already accrued to the assessee it should have accounted for the same. Just because there is a scope of an increase or decrease in the total commission receipts on the basis of something unknown, the income that has already accrued to the assessee cannot be carried down as advance and not offered to tax in the year in which it has accrued. The assessee firm had entered into similar agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show the accrued receipt as advance. The AO held that it is clearly established that the commission income has accrued to the assessee firm during the year and assessable to tax in the year under consideration u/s 5 of the Act, as the assessee firm follows mercantile system of accounting. It was also noted by the A.O. that the assessee firm has not filed any appeal with the Tribunal against the order of the CIT(A) in the quantum assessment which means that the assessee firm has accepted the additions made by the Revenue. The AO relied upon the judgment of the Hon ble Supreme Court in the case of UOI v. Dharmendra Textile Processors, 306 ITR 277 (SC) and held that assessee firm has deliberately failed to disclose the correct and true particulars of its income and thereby tried to postpone the taxability of the correct income. The AO thereby held that the assessee firm has filed inaccurate particulars of income and hence concealed the income. The penalty of ₹ 54,51,920/- was levied by the AO on the assessee firm u/s 271(1)(c) of the Act read with explanation 1 , vide penalty orders dated 28-03-2011. 5. Aggrieved by the penalty orders dated 28-03-2011 passed u/s. 271(1)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the commission income which is subject of dispute had been declared as income in the assessment year 2007-08 before detection by the A.O. and due taxes paid to the Revenue. Mere rejection of the claim for allowing method of accounting consistently followed bona-fide does not mean that the assessee firm has concealed the income or furnished inaccurate particulars. The claim was based on bona fide belief and allowed in the past. The assessee firm submitted that the A.O. has taken an interpretation which is different from the interpretation taken by the assessee firm which does not make the assessee firm liable for penalty u/s 271(1)(c) of the Act. All the details relating to the transactions were duly furnished by the assessee firm before the A.O. , It was explained by the assessee firm before the A.O. as well as before the CIT(A) the rationale behind the method of accounting that commission income only to the extent of completed services where there is no claim by the buyers against the foreign principal s, gets vested in the assessee firm and accrues as income of the assessee firm . In case of rejection of the goods by the Indian buyers of the foreign principals, the commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act vide orders dated 27.07.2012. 7. Aggrieved by the orders dated 27.07.2012 of the CIT(A), the Revenue is in appeal before the Tribunal. 8. The ld. D.R. submitted that the penalty of ₹ 54,51,920/- was rightly levied by the A.O. u/s 271(1)(c) of the Act. The assessee firm has shown commission income of ₹ 1.62 crores as advance in the Balance Sheet. The ld. D.R. relied upon the decision of Hon ble Supreme Court in the case of UOI v. Dharmendra Textiles Processors, (2008) 306 ITR 277 (SC) and the decision of Hon ble Supreme Court in the case of Mak Data Private Limited v. CIT (2013) 38 taxmann.com 448(SC) and the decision s of Hon ble Delhi High Court in the case of CIT v. Escorts Finance Limited (2009) 328 ITR 44(Del HC) and CIT v. Zoom Communication Private Limited (2010) 191 Taxman 179(Delhi).Thus, the ld. DR submitted that there is a strict liability for furnishing of inaccurate particulars of income or concealment of income and hence the assessee firm was rightly subjected to the penalty u/s. 271(1)(c) of the Act by the AO . The ld DR relied upon the orders of the AO and submitted that the CIT(A) erred in deleting penalty. 9. The ld. Counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings which was confirmed by the CIT(A). The assessee firm did not file further appeal with the Tribunal against the order of the CIT(A) in quantum thereby the said additions in quantum proceedings reached finality. The assessee firm had contended that as per agency agreement with these foreign principals the commission income will accrue and vests in the assessee firm only after the foreign principals have received their full payment from Indian Buyer and any rejection or deduction in the payments made by the Indian Buyers to the assessee s foreign principals payments will warrant deduction/reduction in the commission income of the assessee firm as per agency agreements . It is the contention of the assessee firm that the said commission income of ₹ 1.62 crores have not accrued in favour of the assessee firm as per agency agreement. Thus, it is contended by the assessee firm that as per method of accounting consistently followed by the assessee firm, the said commission income of ₹ 1.62 crores is shown as advance from suppliers in this year while the same was duly offered to taxation in the return of income filed for immediately succeeding assessment year volunt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign principals will lead simultaneously deduction in the commission income of the assessee firm as per terms of agency agreement, But the said explanation did not found favour with the Revenue as in their view , the commission has already accrued to the assessee in terms of provisions of the Act and the same is exigible to tax . Thus, the assessee came out with an bona-fide explanation for substantiating the claim made by it in the return of income filed with the Revenue which was not accepted by the Revenue but it did not made the assessee firm liable for penalty u/s 271(1)(c) of the Act. There is a difference of opinion between the assessee firm and A.O. and the claim of the assessee firm was not accepted by the A.O. Mere non-acceptance of the bona-fide claim of the tax-payer by the Revenue does not call for imposition of penalty within the ambit of provisions of Section 271(1)(c) of the Act , more-so the assessee firm came forward with a bona-fide explanation to substantiate its claim and hence the case of the assessee is not hit by explanation 1 to Section 271(1)(c) of the Act. We have observed that the CIT(A) has passed a well reasoned and detailed order and we do not fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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