The order of the Bench was delivered by
Bhavnesh Saini (Judicial Member)- This appeal by the Revenue has been directed against the order of the learned Commissioner of Income-tax (Appeals) Patiala dated December 15, 2014 for the assessment year 2006- 07 challenging the cancellation of penalty under section 271(1)(c) of the Income-tax Act.
2. We have heard learned representatives of both the parties and perused the material on record.
3. The facts of the case are that in this case, the Assessing Officer made an addition of Rs. 41,14,518 on account of the disallowance of liasoning commission. The learned Commissioner of Income-tax (Appeals) deleted the addition, however, the Income-tax Appellate Tribunal Chandigarh Bench confirmed the order of the Assessing Officer in making the addition of Rs. 41,14,518 on account of the liasoning commission. The Assessing Officer then imposed the penalty under section 271(1)(c) of the Act against the addition confirmed of Rs. 41,14,518.
4. The assessee filed detailed submissions before the learned Commissioner of Income-tax (Appeals) which have been reproduced in the impugned order in which the assessee briefly explained that the assessee is individual, had been running the business of resale of cement at Patiala and was acting as handling agent for M/s. J. K. Cement Works, Rajasthan for handing its products during the financial year 2005-06 relevant to the assessment year under appeal. As the handling agent, the role of the assessee was to get the cement dispatched by M/s. J. K. Cement Works from its manufacturing unit at Rajasthan, unloaded in the company godowns at Patiala, Bathinda and Rajpura and thereafter get the same reloaded for different destinations against the orders procured by the company. The assessee was acting as a sale promoter for M/s. J. K. Cement Works at the southern region of Punjab as well. The assessee was further appointed by M/s. Sarvshakiman Traders Pvt. Ltd. of Delhi (STPL) (chief sale promoter for M/s. J. K. Cement Works) as service agent for the State of Haryana for catering to the Government and semi-Government organisations and other institutional buyers. The role of the assessee was to get the supply orders from these organisations released at priority in respect of allocations made against the tender offers of the company M/s. J. K. Cement Works so accepted by the Government authorities and to ensure time schedule for supply and timely payments against such supplies. The assessee is engaged in the above business activities for the last many years and has been maintaining offices at Patiala and Bathinda and had opened another office at Rajpura during the year under consideration with his own team of employees to look after the activities mainly in the State of Punjab. However, services in the State of Haryana as service agent for catering to the Government and semi-Government organisations and other institutional buyers were provided/managed through other service providers in that State also. The role of these service providers was to get the purchase orders released in favour of M/s. J. K. Cement Works at the earliest and ensure the timely release of payments in favour of the company. They were further responsible for getting sorted out any kind of dispute that might arise during the execution of those supply orders by the company. These service providers had been assigned different areas.
4(i) The assessee was to get the service commission at Rs. 25 per tonne of cement so supplied and had agreed with the service providers to pay Rs. 20 per tonne against the services to be provided by them on the basis of the quantity supplied during the financial year in the area so assigned to a particular service provider. This arrangement needs to be appreciated from the point of a prudent businessman as it was not possible for the assessee being individual to have his own office at different places in the State of Haryana and to control a large number of employees required for looking after about 200 such consignees of different organisations at those places. The assessee produced all the books of account and other records to substantiate the explanation before the authorities below. The assessee incurred the expenses for business purposes only.
4.(ii) The assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals) and the addition have been deleted accepting the explanation of the assessee that the business expenses incurred for running the services in the State of Haryana for STPL Delhi. However, the Income- tax Appellate Tribunal has set aside the order of the learned Commissioner of Income-tax (Appeals) and uphold the addition on the ground that the assessee had not been able to establish the link between the expenses incurred and services rendered. It was also submitted that no satisfaction regarding concealment have been recorded by the Assessing Officer. The penalty proceedings are different from the assessment proceedings therefore, penalty need not to be imposed in each and every cases. The assessee relied upon several decisions in support of his contention. The assessee further submitted that he has not furnished inaccurate particulars of income and has not concealed the particulars of income because all the material facts were disclosed to the Revenue authorities. It was submitted that the material particulars namely, the names and addresses, payment made on account of liasoning, the purpose of payment had been placed on record of the Assessing Officer. The persons who have provided services in the State of Haryana were produced before the Assessing Officer and their statements have been recorded in which they have admitted the receipt of payment from the assessee. Thus, all the material facts were within the knowledge of the Assessing Officer. It was further stated that mere making of claim which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding income of the assessee. The assessee relied upon decision of the hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) ; [2010] 230 CTR (SC) 231 . The assessee, therefore, pleaded that penalty may be cancelled. The Assessing Officer in the remand report reiterated the facts stated in the penalty order. The assessee in the rejoinder reiterated the same facts.
5. The learned Commissioner of Income-tax (Appeals) considering material on record and the rival submissions, deleted the penalty. His findings in paragraphs 4.4 and 5 of the impugned order are reproduced as under :
"4.4 I have considered the submissions made. The facts emanating from the record is that the appellant was engaged by M/s. Sarvashaktiman Traders Pvt. Ltd. (The Chief Sale Promoters for J. K. Cement Work) as service agent for the State of Haryana. As contended the services in the State of Haryana were managed through other service providers/sub-agents. The Assessing Officer however disallowed the expenditure claimed by the appellant as incurred on the service providers for providing services in the State of Haryana to the tune of Rs. 41,14,518. During the course of assessment proceeding, the appellant submitted complete details of sub-agents. The Assessing Officer thereafter, recorded the statements of the sub-agents who confirmed having received the payment after deduction of TDS, service tax etc. However, the Assessing Officer disallowed the expenses on the grounds that the sub-agents have not collected the payments from the parties on behalf of the appellant. Rather, it was contended that the purchasing agents directly issued drafts to J. K. Cement. Further during the year, these parties have also not settled any dispute claiming that no dispute arose during the year. Moreover, it was noted that the payments to the sub-agents were cleared only in the month of March 2006 through the liason work was continued during the entire year. Thereafter, the learned Commissioner of Income-tax (Appeals) allowed the expenses claimed. The learned Commissioner of Income- tax (Appeals) noted that the sub-agents in these statements have confirmed receipt of commission by account payee cheques after TDS and service tax is also levied. It was observed that the shortcoming noted by the Assessing Officer are only procedural in nature and not of substance and that the Assessing Officer could not decide the quantum of commission being given to sub-agents. However, the hon'ble Income-tax Appellate Tribunal disallowed the expenditure confirming the order passed by the Assessing Officer. The appellant has further submitted that the issue is debatable as on the same set of facts different views are taken by different authorities and also because on the same set of facts the appeal is admitted in the hon'ble High Court in the assessment year 2007-08 and relied on various case law. Thus, in this case, firstly it is noted that the appellant has disclosed all facts. The sub-agents also appeared before the Assessing Officer and confirmed the receipt of commission which was subject to TDS and service tax also. Further, the learned Commissioner of Income-tax (Appeals) allowed the expense but subsequently the expense was disallowed by the hon'ble Income-tax Appellate Tribunal. It is also noted that in the assessment year 2005-06, in the original scrutiny proceedings, the Assessing Officer allowed similar expenses. Thus, it also is noted that on the same set of facts, differing views are taken by the different authorities. In this case therefore the appellant has disclosed all facts and the subagents have also confirmed receipt of the commission on which TDS and service tax is deducted and the issue is debatable as on the same set of facts, the Assessing Officer in the assessment year 2005-06 original proceedings has not made any addition and the learned Commissioner of Income- tax (Appeals) in the assessment year 2006-07 has accepted the submissions of the appellant. Looking into the facts of the case and the submission made therefor in my opinion, penalty should not be levied in this case. Reliance is made on the case of CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) ; [2010] 230 CTR 331 (SC). Penalty levied is, therefore, cancelled.
5. In the result, the appeal is allowed."
6. The learned Departmental representative relied upon the order of the Assessing Officer and submitted that the assessee failed to substantiate the liasoning commission expenses. The claim of the assessee is not bona fide, therefore, Explanation 1 to section 271(1)(c) of the Act is clearly attracted. The learned Departmental representative submitted that the hon'ble High Court has also confirmed the order of the Tribunal in confirming the addition on the merits vide the judgment dated July 18, 2013 in the case of Raj Kumar Wadhwa v. CIT (Income-tax Appeal No. 117 of 2012). Copy of the judgment of the High Court is placed on record. The learned Departmental representative submitted that penalty is strictly a civil liability and relied upon the decisions of the hon'ble Supreme Court in the caseof Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 and CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (SC). The learned Departmental representative also relied upon the decision of the hon'ble Punjab and Haryana High Court in the case of Shiv Narain Khanna v. CIT [1977] 107 ITR 542 (P&H) on the proposition that the same material could be used in penalty proceedings on the basis of the facts and circumstances of the case for the purpose of levy of the penalty.
6(i) On the other hand, the learned counsel for the assessee reiterated the submissions made before the authorities below. He has referred to the paper book 1 which is the details of liasoning commission paid during the assessment year under appeal. Paper book 2 to 8 are the copies of the bills raised by the parties for the purpose of charging commission and service tax. Paper book 9 is details of liasoning DS and D received and paid for the years 2002-03 to 2005-06. Paper book 17 to 30 are the copies of the statements of the sub-agents recorded by the Assessing Officer at the assessment proceedings in which they have confirmed the receipt of liasoning commission from the assessee. The learned counsel for the assessee submitted that the assessee is carrying on the same business activities in the past as well as in the assessment year under appeal. The parties in the earlier year were different but the modus operandi of the business of the assessee is the same. Therefore, the claim of the assessee cannot be said to be incorrect or false for claiming the liasoning expenses. He has submitted that the sub-agents have duly raised bills for commission and the sales have actually been made. The assessee had deducted TDS on such payments for commission and service tax provisions are also complied with by the commission agent. The assessee at the assessment stage provided each and every material and has not concealed any particulars of income. The assessee disclosed all the material facts before the authorities below and addition is made merely on difference of opinion. The learned counsel for the assessee relied upon the following decisions on the proposition that no penalty could be levied even if the addition has been confirmed by the higher authorities :
(i) CIT v. Bal Kishan Dhawan, HUF (I. T. A. No. 183 of 2013 hon'ble Punjab and Haryana High Court) (PB-29)
(ii) CIT v. Ajaib Singh and Co. [2002] 253 ITR 630 (P&H) (PB-34)
(iii) CIT v. Mehta Engineers Ltd. [2008] 300 ITR 308 (P&H) ; 219 CTR (P&H) 285 (PB-38)
(iv) CIT v. Sangrur Vanaspati Mills Ltd. [2008] 303 ITR 53 (P&H) (PB- 40)
6. (ii) The learned counsel for the assessee also filed a comparative chart of liasoning commission paid in the ten assessment years under appeal as well as in the preceding assessment years 2002-03 to 2005-06 supported by the trading and profit and loss account for all these years in which the assessee has shown the net income by liasoning. He has submitted that in the financial years 2002-03 and 2003-04, the returned income have been accepted under section 143(1) and in the financial year 2004-05 the returned income have been accepted, later on disallowance has been made under section 148 of the Act. The learned counsel for the assessee, therefore, submitted that the learned Commissioner of Income-tax (Appeals) on proper appreciation of the facts and the material on record rightly deleted the penalty.
7. We have considered the rival submissions. It is not in dispute that the Assessing Officer disallowed the liasoning commission for the amount in question but the learned Commissioner of Income-tax (Appeals) deleted the addition by accepting the explanation of the assessee. The Revenue preferred an appeal before the Tribunal and the Tribunal vide order dated February 23, 2010 allowed the Departmental appeal by upholding the order of the Assessing Officer in making the addition of Rs. 41,14,518. Copy of the judgment is placed on record. The Tribunal in the order precisely noted that the assessee has failed to explain with evidence the nature of services rendered by the sub-agent. The Tribunal also noted that the onus is upon the assessee to establish that the expenses have been incurred for the purpose of business. The order of the Tribunal has been confirmed by the hon'ble High Court. In the background of these facts, it is clear that the assessee in the earlier years was doing the same business activities and in the earlier year, the assessee in the profit and loss account has shown the business income on liasoning by declaring the net income on liasoning in the profit and loss account. The details of the same are placed on record. The assessee produced the sub-agents before the Assessing Officer for examination and their statements have been recorded in which they have confirmed the receipt of commission from the assessee which were subjected to TDS and service tax charges. The assessee also produced copies of the bills raised by the sub-agents which are supported by their statements. The authorities below, however, did not accept the explanation of the assessee because the assessee failed to prove what services, the sub- agents have rendered for the purpose of business of the assessee.
7. (i) It is the admitted fact that the assessee being individual was running the business of resale of cement as well as providing services to M/s. J. K. Cement Works and M/s. STPL of Delhi. The assessee was running services for them for liasoning in the State of Punjab as well as in Haryana. For the State of Haryana, the assessee engaged sub-agents, therefore, considering the volume of business of the assessee and the nature of its activities, it is clear that the assessee would not have conducted the entire business of liasoning by himself and would be required to engage sub-agents for performing the business activities of the assessee. May be the assessee is not able to satisfy the authorities below as to what services have been rendered by the sub-agents and liasoning commission have been disallowed, however, by itself, would not prove that the explanation of the assessee was incorrect or false. It is well-settled law that the findings given in the assessment order are relevant and have probative value but these alone are not conclusive to attract the levy of the penalty. The levy of penalty is not automatic in each and every case and it depends upon the facts and circumstances of each case. It is well-settled law that quantum and penalty proceedings are independent and distinct proceedings and the assessee in the penalty proceedings still could explain that levy of the penalty is not justified even if the quantum addition have been confirmed by the authorities below. The hon'ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills [2009]-TIOL-63-SC held that "On every demand, penalty is not automatic". The hon'ble Delhi High Court in the case of CIT v. Nath Bros. Exim International Ltd. [2007] 288 ITR 670 (Delhi) held as under (headnote) :
"The assessee had claimed dividend income as his business income and according to the assessee it was entitled to a deduction under clause (baa) of the Explanation to section 80HHC(4C) of the Income- tax Act, 1961. The Assessing Officer disallowed the claim and imposed penalty. The Tribunal came to the conclusion that the asses see had disclosed all the facts, and therefore even though it had made an erroneous claim which could not be justified in law, that by itself did not attract the penal provisions of the Act. On appeal to the High Court :
Held, dismissing the appeal, that there was full disclosure of all relevant material. It could not be said that the conduct of the assessee attracted the provisions of section 271(1)(c). The cancellation of penalty was justified."
(ii) The hon'ble Supreme Court in the case of CIT v. Reliance Petro products Pvt. Ltd. [2010] 322 ITR 158 (SC) held as under (headnote) :
"A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961 suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word 'particulars' used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be in correct or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provisions, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tanta mount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.
Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."
8. Considering the facts and circumstances of the case in the light of material on record, it is clear that during the course of assessment proceedings, the assessee submitted complete details of sub-agents rendering services for the assessee in the State of Haryana. Their statements were recorded in which they have confirmed having received the payment after deduction of TDS and service tax. The assessee, thus, has disclosed all the material facts to the Revenue authorities. In the assessment year 2005-06, in the original scrutiny proceedings, the Assessing Officer allowed a similar claim of the assessee on the same set of facts. Therefore, there is no finding by the authorities below that any details or explanations given by the assessee in his return are found to be incorrect or erroneous or false. A mere making of claim which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding income of the assessee. The assessee also produced complete details to show that even in the preceding assessment years, the assessee was engaged in the similar business activities and has shown the liasoning income on net basis. Therefore, the claim of the assessee could not be said to be incorrect or false so as to invite the levy of penalty in the matter. It may also be noted here that the Assessing Officer in the assessment order as well the penalty under section 271(1)(c) of the Act for concealment and furnishing inaccurate particulars of income. The Assessing Officer is, therefore, not sure as to which offence the assessee has committed for levy of the penalty, whether concealment of income or for filing inaccurate particulars of income. The assessee has, thus, offered an explanation supported by the material evidence on record and the explanation of the assessee is not found to be false. The explanation of the assessee has been substantiated by material facts and the explanation of the assessee appears to be bona fide and is based on the facts and circumstances of the case. Therefore, merely because the commission expenses have been disallowed in the assessment year under appeal and confirmed by the appellate authority, by itself is no ground to levy the penalty under section 271(1)(c) of the Act against the assessee.
9. Considering the totality of the facts and circumstances, we are of the view that learned Commissioner of Income-tax (Appeals) on proper appreciation of facts and material evidence on record, correctly deleted the penalty. There is no infirmity in the order of the learned Commissioner of Income-tax (Appeals). We confirm his order and dismiss the Departmental appeal.
10. In the result, the Departmental appeal is dismissed.