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2016 (5) TMI 685 - ITAT MUMBAI

2016 (5) TMI 685 - ITAT MUMBAI - TMI - Penalty u/s 271(1)(c) - commission income receipt - Held that:- No penalty is leviable in the instant case keeping in view peculiar facts and circumstances of the case as set out above, as there is no deliberate attempt or positive act on the part of the assessee firm to conceal income or furnish in-accurate particulars of income. The bona-fide claim was made by the assessee firm based on the terms and condition of the agency agreement and the method of acc .....

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e 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 .....

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71(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 appeal, filed by the Revenue, being ITA No. 6168/Mum/2012, is directed against the order dated 27.7.2012 passed by learned Commissioner of Income Tax (Appeals)- 23, Mumbai (hereinafter called t .....

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f the case and in law, the Ld. CIT(A) is right in holding that the order passed by the AO u/s.271(1)(c ) of the I.T. Act, 1961 is incorrect, without appreciating the fact that the assessee had filed inaccurate particulars during the assessment proceedings." 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that the A.O in a detailed order has categorically brought out the fact that income has accrued to the assessee in the .....

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eign principals directly to Indian Buyers like L & T, BHEL, Essar Steel etc. for their power projects. The assessee firm gets commission income from the foreign principal s. 4. The return of income was filed by the assessee firm with the Revenue declaring total income of ₹ 70,46,095/- on 13th October, 2006 and assessment u/s 143(3) of the Income Tax Act, 1961 was completed by the AO on 26th December, 2008 u/s. 143(3) of the Act assessing the income at ₹ 2,32,43,125/-. During the .....

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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 exa .....

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ment between the parties was 09.10.2000. The terms of agreement are as follows: a) the assessee firm shall exert its best endeavors to procure orders for the sale of the products in the territory. Ascometal shall send to assessee its quotations against the enquiries transmitted by assessee firm and the quotation shall include the terms and conditions on which order should be procured by assessee from the customers in the territory. b) The assessee firm shall procure orders from customers in the .....

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less the order is placed within the validity period on the terms and conditions of the offer made by Ascometal. e) It is hereby expressly agreed and declared that assessee firm has no authority to accept or reject any orders from customers in the territory, the right to accept or reject such orders coming exclusively from Ascometal and assessee firm has no authority to enter into any contract for or on behalf of Ascometal, unless otherwise authorised by Ascometal in writing to do so on its behal .....

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e firm. This commission amount can be increased or decreased by initial agreement and in exceptional cases where the customer prefers a claim on use for the rejection of goods supplied by us on account of quality on quantity and accepted 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 Ascom .....

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f 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 agreements with the following three foreign parties and received commission inco .....

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rs of ₹ 1,61,97,030/- was treated by the A.O. as business income of the assessee firm and added to the total income of the assessee firm vide assessment order dated 26.12.2008 passed u/s 143(3) of the Act keeping in view the concept of accrual of income and as the income has accrued to the assessee firm the same was brought to tax as per Section 5 of the Act . Consequently, the penalty proceedings were initiated u/s 271(1)(c) of the Act against the assessee firm for concealment of income b .....

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proceedings initiated u/s 271(1)(c) of the Act submitted that the assessee firm has not concealed any income with deliberate intention to deprive the revenue of its legitimate taxes. The contentions of the assessee firm were rejected by the A.O. on the ground that the assessee firm has not proved that the amount shown in the balance sheet is only an advance receipt. As per the agency agreement signed by the assessee firm, the commission income will become due and payable to the assessee firm aft .....

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he 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 taxabilit .....

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hat the assessee firm has not concealed any income or furnished any inaccurate particulars of income. The Income has already been disclosed albeit in the next year and due taxes paid to the Revenue. It was also submitted by the assessee firm that there is a mistake in the calculation of concealed income as income was not adjusted as per the CIT(A) order in quantum assessment, while computing the penalty imposable. It was submitted that the assessee firm has offered the said amount as advance in .....

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he year be allowed as deduction from the income. The assessee firm submitted that the A.O. has not considered this aspect and after giving effect to the CIT(A) s order in quantum proceedings, the difference in income was ₹ 95,05,842/- instead of ₹ 1,61,97,030/- considered by the A.O. and this is a mistake in the computation. The assessee firm submitted that the similar additions were made in the subsequent year i.e. assessment year 2007-08 but no penalty has been levied by the Revenu .....

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ision in the case of ITO v. Veena Estates P. Ltd., 81 ITD 401 and also the decision of Hon ble Supreme Court in the case of Bilahari Investment Pvt. Ltd. v. CIT [2008] 299 ITR 1 (SC) and CIT v. Realest Builders & Services Ltd. [2008] 170 Taxman 218 (SC). The assessee firm submitted 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 all .....

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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 commission paid to the .....

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e are two views possible. The assessee firm is following the same method of accounting since the assessment year 2005-06 based upon several judicial decisions. While rejecting the method of accounting, if there are two views possible and the question arises of fastening of penal liability, benefit of doubt should be given to the assessee and no penalty is leviable. The CIT(A) considered the submission of the assessee firm and the orders of the A.O. . The CIT(A) observed that the A.O. had totally .....

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on on the same issue. The assessee firm had disclosed the receipts as advance in the year and treated them as income in the subsequent year. Method of accounting is consistently followed by the assessee firm. The assessee firm has submitted bona fide explanations as to the method of accounting. The CIT(A) held that penalty cannot be levied on mere rejection of an explanation furnished by the assessee firm. The A.O. while framing the penalty order failed to establish that the explanation given by .....

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al 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 .....

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hat the CIT(A) erred in deleting penalty. 9. The ld. Counsel for the assessee firm reiterated its submissions as were made before the authorities below . The ld. Counsel submitted that the assessee firm has received advances from the clients amounting to ₹ 1.62 crores which will accrue to the assessee firm when the said foreign principals receive the payments for products supplied to Indian Buyers, as per agency agreement of the assessee firm with the foreign clients.. The assessee firm is .....

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We have considered the rival contentions and also perused the material available on record including case laws relied upon by rival parties. We have observed that the assessee firm is in an indenting business of steel products on behalf of the foreign suppliers for supplies by the foreign principals made directly to Indian Buyers like L & T, BHEL, Essar Steel etc. for their power projects. The assessee firm gets commission income from the foreign principal s as per agency agreement. We have .....

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e 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. The afore-stated commission income was thus brought to tax in the hands of the assessee firm for the impugned assessment year 2006-07 by the AO in quantum assessment proceedings which was confi .....

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n 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 .....

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albeit in the next year and due taxes paid to Revenue. It is the contention of the assessee firm that the method of accounting as set out above is regularly followed with bona-fide intentions and there is no mala-fide on the part of the assessee to conceal income or furnish in-accurate particulars of income or postpone the liability for taxation. The method of accounting consistently followed by the assessee firm has not found favour with the Revenue which in our considered view keeping in view .....

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ed by the assessee firm. In fact for the assessment year 2007-08, the penalty proceedings were initiated by the Revenue on the similar ground but was later dropped by the AO vide orders dated 15-03-2012 which are placed in paper book page 1. In our considered view, no penalty is leviable in the instant case keeping in view peculiar facts and circumstances of the case as set out above, as there is no deliberate attempt or positive act on the part of the assessee firm to conceal income or furnish .....

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rs and any deductions by the Indian Buyers in the payments due to the 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 .....

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