KUMUD K . SHROFF,MUMBAI vs. ITO 17(3)(2), MUMBAI

The present appeal has been preferred by the assessee against the order dated 29.08.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] agitating the confirmation of penalty levied by the Assessing Officer (hereinafter referred to as the AO) under section 271(1)(c) of the Act.

The brief facts of the case are that the assessee is in the business of distributor of pharmaceutical products. The addition to the income of the assessee was made by the AO for want of confirmations from the respective parties i.e. District Sales Agencies (DSA’s) about the commission and incentives paid to them. Against the above addition made by the AO, the assessee filed appeal before the Ld. CIT(A), who vide order dated 23/03/2007 granted certain reliefs against the disallowances made on account of the commission and incentives paid to the DSA’s. The assessee further contested the matter before the ITAT, Mumbai and the ITAT vide order dated 27/01/2010 confirmed the disallowances made to the extent of Rs.12,60,824/- in respect of the commission and incentives to DSA's. The ITAT further restored the matter back to the file of the AO for fresh adjudication for verification and confirmation of balance amount of commission paid to the DSA’s. In compliance of the order of the ITAT, the AO made fresh assessment during which the AO made certain disallowances in respect of commission and incentives paid to the DSA’s for want of confirmation from the respective parties. He also initiated the penalty proceedings under section 271(1)(c) of the Act and levied the impugned penalty. The Ld. CIT(A) also confirmed the penalty. Being aggrieved, the assessee has come in appeal before us.

Before us the Ld. A.R. of the assessee has submitted that almost 12 years had passed from the financial year in which the transaction had been carried out till the assessment proceedings under section 143(3) r.w.s. 256 of the Act were carried out by the AO. Further, it is submitted that approx 90% of the total confirmation for the amount of the commission paid was submitted to the AO. However, due to the lapse of approx 12 years from the year in which the transaction had been carried out, the assessee was not able to submit the remaining confirmations. Further it is submitted that all the payments were made through the Account Payee cheques/ demand drafts and the bank confirmations have been submitted during the assessment proceedings. Further it is submitted that TDS on the commission paid had also been deducted for the said year under consideration. Further there has been allowance of the said commission paid in the earlier as well as subsequent years assessment proceedings. Further it is submitted that in the meanwhile and during the long tenure of 12 years the business of the assessee has closed down. He, therefore, has submitted that it was difficult for the assessee to get the confirmation from the parties to the transaction made during the year under consideration. However, the assessee has provided majority of the confirmation and other details from the parties to whom the commission was paid for the year under consideration. He, therefore, has submitted that it is not a case of furnishing of inaccurate particulars of income or concealment of income. The Ld. D.R., on the other hand, has relied upon the findings of the lower authorities.

We have heard the rival contentions and have also gone through the records. After consideration of the overall facts and circumstances of the case, we are of the view that the present case is not a case of furnishing of inaccurate particulars of income or concealment of income. The disallowances in question were made because of non furnishing of the confirmations/evidences in respect of commission and incentives paid to the medical representatives/agencies. The TDS was duly deducted on such payments and deposited. A long time of 12 years has passed from the date of transaction. The assessee had confirmed the major part of the transactions but due to certain circumstances he could not provide the confirmation in respect of a few transactions. The disallowances have been made for lack of evidence and not on account of furnishing of inaccurate particulars of income or on the basis of any detection of wrong claim. We therefore do not find any justification on the part of the lower authorities in levying the penalty under section 271(1)(c) of the Act and the same is therefore ordered to be deleted.

In the result, the appeal of the assessee is hereby allowed.