Maldeep Catalysts Pvt.Ltd.,, Surat vs Assessee

1. These 2 appeals filed by the Assessee are against the order of CIT(A)-I, Surat dated 14.06.2011& 22.06.2011 for A.Ys. 2005-06 & 2006-07 respectively.

2. In this case, none appeared on behalf of Assessee but however written submissions dated 11.06.2015 were filed by the Assessee. We therefore 2 ITA No 2231 & 2232/AHD/2011 . A.Ys. 2005-06 & 2006-07 proceed to decide the appeal, ex parte qua the Assessee on the basis of material on record and written submissions.

3. We first proceed with ITA No. 2231/Ahd/2011 for A.Y. 2005-06.

4. The relevant facts as culled out from the material on record are as under.

5. Assessee is a company stated to be engaged in the business of manufacturing of paint driers. Assessee filed its return of income for A.Y. 2005-06 on 30.10.2005 declaring total income of Rs. 63,70,830/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 17.12.2007 and the total income was determined at Rs. 1,75,68,580/- by interalia making addition on account of excess raw material usage and disallowing commission expense of Rs. 23,98,378/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who deleted the addition on account of excessive use of raw material but granted partial relief on account of commission expenses by confirming the addition to the extent of Rs. 5,12,341/-. On the aforesaid addition of commission expenses that was confirmed by ld. CIT(A), A.O vide order dated 18.03.2010 held that Assessee had committed default by furnishing inaccurate particulars of income and thereby concealed the income and accordingly levied penalty of Rs. 2,10,947/- u/s. 271(1)(c) of the Act. Aggrieved by the order of A.O against the levy of penalty, Assessee carried the matter before ld. CIT(A) who vide order dated 06.06.2011 dismissed the appeal of the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us and has raised the following grounds:-

1. That on facts and circumstances of the case, the learned CIT(A) has erred in upholding the penalty of Rs. 2,10,947/- u/s. 271(l)(c) of the Act in respect of the 3 ITA No 2231 & 2232/AHD/2011 . A.Ys. 2005-06 & 2006-07 disallowance of commission expenses amounting to Rs. 5,12,341/- as made by the AO, which is absolutely incorrect and bad-in-law, requiring outright annulment since subsequent to the passing of the subject order by the Id. CIT(A) confirming the penalty, the Id. AO has deleted the entire disallowance of commission expenses in a set-aside proceedings vide his order dated 16-08-2011 as passed u/s. 143(3) r.w.s. 254 of the Act.

Hence, the subject penalty u/s. 271(l)(c) as levied by the AO becomes in fructuous and bad-in-law requiring out right annulment by the Hon'ble Bench.

6. Before us, in the written submissions, Assessee has submitted that against the quantum order passed by ld. CIT(A), Assessee and Department had preferred appeals before Hon'ble Tribunal. Hon'ble Tribunal vide order dated 18.03.2011 in ITA No. 3708/A/2008 dismissed the appeal of the Department and set aside the issue of disallowance of commission to A.O for deciding the issue afresh as per the directions given therein. Pursuant to the direction of Hon'ble ITAT, A.O passed order u/s. 143(3) r.w.s. 254 order dated 16.08.2011 whereby the entire disallowance of commission expenses as made in the original order of assessment was deleted. (The copy of the aforesaid orders were placed on record). It was therefore submitted that when the entire disallowance of commission expenses has been deleted in the set-aside proceedings, the penalty levied u/s. 271(1)(c) becomes infructuous and therefore needs to be deleted.

7. The ld. D.R. on the other hand supported the order of A.O.

8. We have heard the ld. D.R. and perused the material on record and the written submissions. In the present case, penalty u/s. 271(1(c) has been levied on the disallowance of commission expenses. We find that the commission expenses that were disallowed by A.O and pursuant to the directions of Hon'ble ITAT were deleted by the A.O in the set aside 4 ITA No 2231 & 2232/AHD/2011 . A.Ys. 2005-06 & 2006-07 proceedings in the order passed u/s. 143(3) r.w.s. 254 of the Act. In such a situation, we are of the view that since the addition on which the penalty has been levied itself has been deleted the question of levy of penalty u/s. 271(1)(c) does not survive. We therefore direct the deletion of penalty. Thus this ground of Assessee is allowed.

9. In the result, the appeal of Assessee is allowed.

We now proceed with in ITA No. 2232/Ahd/2011 for A.Y. 2006-07.

10. Assessee filed its return of income for A.Y. 2006-07 on 29.12.2006 declaring total income of Rs. 8,79,328/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 29.12.2008 and the total income was determined at Rs. 20,85,090/- interalia by disallowing agents commission to the extent of Rs. 21,43,524/-. Aggrieved by the order of A.O in quantum proceedings, Assessee preferred appeal before ld. CIT(A) who granted partial relief to the Assessee and upheld the addition to the extent of Rs. 5,37,667/- as against the addition of Rs. 21,43,524/- made by the A.O. On the addition of commission of Rs. 5,37,667/- that was confirmed by CIT(A), A.O vide order dated 18.03.2010 held that the Assessee has furnished inaccurate particulars and thereby concealing the income and therefore levied penalty of Rs. 1,77,430/- u/s. 271(1)(c) of the Act. Against the quantum order of ld. CIT(A), Revenue as well as Assessee preferred appeal before Hon'ble Tribunal. Hon'ble Tribunal vide order dated 09.09.2011 in ITA No. 1444/A/2009 and 1799/A/2009 order dated 09.09.2011 upheld the addition on account of commission to the extent of Rs. 32,576/- as against the addition of Rs.

5 ITA No 2231 & 2232/AHD/2011 . A.Ys. 2005-06 & 2006-07

5,37,667/- which was upheld by ld. CIT(A). Before us, in the written submissions, Assessee submitted that during the course of assessment proceedings, Assessee had furnished the name, address, PAN number of the agent, bills-wise and customer-wise details of the sales made through the agent confirmation of the agent before the A.O. It was further submitted that the entire commission was paid through account payee cheque and after deduction of TDS. It was therefore submitted that Assessee had completely discharged the onus by proving the identity of the person to whom the payment was made, the genuineness of transaction . It is further submitted that the disallowance of commission expenses has been upheld merely on conjectures and surmises without rebutting the evidence submitted by the Assessee. It was further submitted that the commission paid to Amar Chemicals have not been found to be incorrect erroneous or false and in such a case it was urged that the penalty levied be deleted. The ld. D.R. on the other hand supported the order of A.O and ld. CIT(A).

11. We have heard the ld. D.R. and perused the material on record. In the present case, the issue is with respect to levy of penalty u/s. 271(1)(c) on the commission amount of Rs. 5,37,667/- that was confirmed by ld. CIT(A) as against the addition of Rs. 21,43,524/- made by the A.O. It is also a fact that the addition on account of disallowance of commission has only be upheld to the extent of Rs. 32,576/- by the Co-ordinate Bench of Tribunal whereas the penalty that has been levied by the A.O is on the amount of Rs. 5,37,667/- which was upheld by ld. CIT(A). In such a situation, penalty could not be levied on the addition which has been deleted. Further, it is a settled law that the finding in the quantum proceeding is not a factor for determining the question for the purpose of imposing penalty. Question of 6 ITA No 2231 & 2232/AHD/2011 . A.Ys. 2005-06 & 2006-07 penalty has to be decided independent of such finding. It is well settled that the parameters of judging the justification for addition made in the assessment case of the assessee is different from the penalty imposed on account of concealment of income or filing inaccurate particulars of income and that certain disallowance/addition could legally be made in the assessment proceeding on the preponderance of probabilities, but no penalty could be imposed u/s 271(l)(c) of the Act on the preponderance of probabilities. In view of the aforesaid facts we are of the view that no penalty is leviable in the present case and therefore direct its deletion. In the result this ground of Assessee is allowed.

12. In the result, both the appeals of Assessee are allowed.

Order pronounced in Open Court on 19 - 06 - 2015.

Sd/- Sd/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad