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TMI Blog2008 (9) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... rior decoration and job work which included the impugned receipt of Rs. 63 lakhs from the assessee, expenditure debited in the books was only Rs. 25,03,060. It was therefore, held that the payment of Rs. 63 lakhs was far in excess of the actual expenditure incurred by the sister concern for the job work done for the assessee. After examination of the details, the AO found that the value of the job which was entrusted to the sister concern was of only Rs. 32,09,974 for which the appellant had made a payment of Rs. 63,00,000. As the MPIC filed a loss return it was held by the AO that the assessee made excessive payment with a view to reduce its own tax liability. He therefore, disallowed an amount of Rs. 30,82,026 as excessive payment under s. 40A(2)(b) of the IT Act. The assessee filed appeal against the order of the AO. The CIT(A) after examining all aspects has confirmed the disallowance made by the AO. Penalty proceedings under s. 271(1)(c) was initiated during the course of assessment proceedings. After the dismissal of the appeal, the AO issued show-cause notice to the assessee asking it to explain why penalty under s. 271(1)(c) should not be imposed. In response, it was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not doubted the work undertaken by the sister concern. Only to the extent of reasonableness of the payment the AO invoked provisions of s. 40A(2)(b). Had he considered the expenditure under the provisions of s. 37(1) and proved that the assessee has spent more than required, then the issue can be different. However, he disallowed the amount under the provisions of s. 40A(2) which is as under: "40A(2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in cl. (b) of this sub-section, and the AO is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. (b) The persons referred to in cl. (a) are the following, namely: (i) where the assessee is any relative of the assessee; an individual (ii) where the assessee is a any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession." The provisions of s. 40A(2) of the Act by its very nature is something which the AO has to determine by using his discretion, subject to the limitations laid down in this behalf in the aforesaid provisions. It is not possible for an assessee to anticipate whether an AO would invoke his discretion and make a disallowance under the provisions of the s. 40A(2)(b) of the Act. Therefore there cannot be disclosure of income resulting from disallowance made under s. 40A(2)(b). The form in which return of income is to be filed by a corporate assessee does not contemplate any disclosure of income earned by the assessee which could be subject to scrutiny under s. 40A(2)(b) of the Act. In the form of tax audit report to be given under s. 44AB of the Act, the auditors are obliged to point out transactions if any which are covered under the provisions of s. 40A(2)(b) of the Act. Wherever legislature deems a disclosure necessary in the return of income with reference to a particular situation it has made such provision. For example, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. In view of the peculiar facts of the case it cannot be stated that the assessee has either furnished inaccurate particulars or concealed incomes. The provisions of s. 271(1)(c) of the Act were not attracted to the cases where income of an assessee is assessed on estimate basis and additions are made therein. It was held that when the additions has been made on the basis of estimate and not on account of any concrete evidence of concealment, penalty was not leviable. In the case of Dilip N. Shroff vs. Jt. CIT (2007) 210 CTR (SC) 228 : (2007) 291 ITR 519 (SC) the apex Court considered the scope of levying penalty under s. 271 (1)(c) wherein it was held as follows: "The legal history of s. 271(1)(c) of the Act traced from the 1922 Act prima facie shows that the Explanation were applicable to both the parts. However, each case must be considered on its own facts. The role of the Explanation having regard to the principle of statutory interpretation must be borne in mind before interpreting the aforementioned provisions. Clause (c) of sub-s. (1) of s. 271 categorically states that the penalty would be leviable, if the assessee conceals the particulars of his income or furnished i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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